Monte dei Paschi

Capital markets in Italy were plunged into an inferno of uncertainty this week, as investors appeared to lose confidence in the country’s economy and banks following the government’s release of its proposed budget, write Sam Kerr and Jasper Cox. Banks and companies looking to raise equity or debt face a tricky time.

Italy’s announcement that it plans to overshoot the European Commission’s budget deficit limit has spooked markets at a crucial time for the country’s banks.

Banca Carige has shaken up its management team and is preparing to return to the European Central Bank with a new plan for keeping its capital ratios in check. But the troubled Italian lender is going to have its work cut out in accessing the debt or equity markets before the end of the year, with a whole host of its peers waiting to do the same, write Tyler Davies and Sam Kerr.

Rating: Baa2/BBB/BBB

Cassa Depositi e Prestiti on Tuesday brought the first syndicated SSA supply from Italy since a large sell-off in BTPs began in May — and investors appeared happy with the risk, allowing tightened pricing and a well-oversubscribed book. The sustainability bond came amid a flurry of SRI deals.

The Italian banking sector could be hurtling towards another crisis this autumn, with the government’s budget negotiations expected to put pressure on the bond market, worsening funding conditions for banks, write Jasper Cox and Bill Thornhill.

Buyers of bonds issued by banks and insurers are bracing for the prospect of arguments between the EU and the Italian government damaging the country's fragile financial institutions. Banca Carige faces particular scrutiny.

Italy’s Tecnimont has agreed a new syndicated loan package totaling €285m from its domestic banking group, with the engineering contractor cutting 25bp off its debt costs.

With investors taking fright at Italian politics and volatility returning to the FIG market, finding an opportunity to press on with funding and bank capital raising plans will now be harder for less frequent, smaller issuers in Europe’s periphery countries. Three problem banks of recent times have each indicated plans to raise subordinated debt: Monte dei Paschi di Siena, Carige and Caixa Geral de Depósitos, and market participants will be keen to see what they do next, writes Jasper Cox.

Investors and analysts are assessing Italian banks in light of the fall in their capital ratios resulting from their exposure to sovereign debt.

On Monday investors were turning away from Italian bank debt after the Five Star Movement and the League reached a coalition agreement. But some believe the market will shortly rally.

Italian bank debt was in the firing line this week, after investors became fearful of the country’s political situation for the first time since the election in March.