Dec. 9 (Bloomberg) -- UniCredit SpA and Banca Monte dei Paschi di Siena SpA must raise a combined 11.2 billion euros ($15 billion), the most among Italian banks, after the spread of the region’s debt crisis hurt the value of their bond holdings.
The European Banking Authority told Italy’s top five lenders they have to boost capital by 15.4 billion euros, up from 14.8 billion euros estimated in the previous round of stress tests in October. The current stress tests include the value of sovereign bond holdings through the end of the third quarter and UniCredit and Monte Paschi saw their capital needs increase after some European sovereign bonds tumbled.
UniCredit will need 8.0 billion euros ($11 billion) in additional capital, the second most among European banks after Banco Santander SA, and up from 7.4 billion euros previously estimated in October, the EBA said yesterday. Monte Paschi’s shortfall rose to 3.3 billion euros from 3.1 billion euros, the two lenders said in separate statements.
Italian lenders are facing higher costs of funding as contagion from the sovereign debt crisis spread to Italy last month, pushing the yield on the country’s 10-year bond above the 7 percent threshold that led Greece, Ireland and Portugal to seek bailouts. European leaders are demanding the region’s banks bolster their capital to protect against possible losses after financial firms agreed to take writedowns on their Greek bonds.
UniCredit said its plan to raise 7.5 billion euros through a share sale in January and the inclusion of 2.4 billion euros of convertible and subordinated hybrid equity-linked securities, known as CASHES, in its core Tier 1 calculations will allow it to exceed the capital targets set by EBA. The Milan-based bank’s core Tier 1 capital will rise to 9.4 percent after the measures are implemented, higher than the 9 percent goal set by the EBA for June.
Unione di Banche Italiane ScpA said it needs 1.4 billion euros and Banco Popolare SC 2.7 billion euros. For both lenders the authority requested about 100 million less than estimated in October.
Intesa Sanpaolo SpA, the country’s No. 2 bank, is the only Italian bank under review that doesn’t need additional capital, the regulator said.
Monte Paschi and Banco Popolare said that the core Tier 1 target is “not appropriate” for national banks that primarily focus on consumer lending. They asked the EBA to delay and lower the goal for consumer lenders. The current rules may crimp lending activity, hurting the real economy, they said.
The EBA estimated capital needs at 114.7 billion euros, 8 billion euros more than previously estimated, for the banks in the region. It gave them until Jan. 20 to submit money-raising plans to national supervisors. Banks that fail to raise enough capital in the market will first tap national governments, falling back on the European Financial Stability Facility rescue fund only as a last resort.
Italian sovereign bonds handed investors a loss of 4.2 percent in the three months to September, while Portuguese notes fell 1.1 percent and German bunds jumped 7.9 percent, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
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