Algebris’ Serra gives Italy’s weakest links a year to fail
Italian banks and the government at risk of failure within 12 months; signs of a more reconciliatory attitude to the EU.
Large swathes of Italy’s banking sector could start to fail next year if government bond yields do not fall dramatically, according to one of the most active investors in European banks.
Davide Serra, chief executive of Algebris Investments, also gives Italy’s populist government coalition less than 12 months to survive, whatever its future path.
But before the coalition entirely reverses its budget intentions – and before either side is forced to exit the coalition – widening government bond spreads will hurt Italian banks’ already dismal profitability, says Serra. And the spread will lead to new hits to their asset quality and therefore capital.
Algebris manages $12 billion in assets under management, mostly European bank credit.
Negations with the European Commission over the budget deficit have caused spreads between Italian and German government 10-year bonds to inch up this autumn, after they doubled to about 300 basis points when the coalition came to power in the spring. Italy’s most recent 10-year BTP sale in late October had a coupon of 2.8%, compared with 0.25% in an equivalent sale of government securities in Germany on November 28.