UniCredit Failure Concerns, Spanish Bond Margin Hike Rumors Drives V-Shaped Recovery In "Risk Off"

Tyler Durden's picture

Following a relatively quiet overnight session which despite various bond auctions in Europe did not see any flagrant contagion, and in which ongoing ECB buying of Italian bonds led the 10 Year BTP spread back to 6.75%, things have taken a very quick turn for the worse once again, and the BTP is now back at the day wides at 7.10%, following the following Reuters headline which is rather self explanatory: RTRS-UNICREDIT CEO, IN MEETING WITH ECB, TO ASK FOR MORE ACCESS TO  ECB FUNDING FOR ITALIAN BANKS BY WIDENING TYPE OF COLLATERAL  USED-SOURCE CLOSE TO BANK. Hmmmmm, UniCredit....where is that name familiar from. Oh wait, that's right - it was, once again, the top name on yesterday's Sigma X report of most actively traded companies by Goldman's special clients. Good to see there was no leakage here at all, none. And making things worse across the Mediterranean is the rumor that LCH Clearnet will promptly follow suit, and hike Spanish margins now that the spread to German Bunds is over 450 bps. Bottom line: Same Europe, Different Day. Here is our perfectly uneducated guess - market plunge in the morning in which institutions dump, ramp in the afternoon in which retail and HFTs buy.

More on UniCredit:

UniCredit will ask the European Central Bank at a meeting on Wednesday to increase access to ECB borrowing for Italian banks, a source close to the bank said, highlighting funding concerns among the country's lenders. In a sign of growing funding strains on traditional refinancing channels, UniCredit's net negative interbank position at the end of September rose to 67 billion euros, from 44 billion in the previous quarter, said Cheuvreux analyst Silvia Benzi. "Going forward, this funding mix is barely sustainable, particularly in a context in which regulators are pushing for a more balanced funding structure," she said in a report.

 

Italian banks have increased their reliance on the ECB for cheaper funding since the summer as the euro zone's third biggest economy was sucked ever deeper into the region's debt crisis and its lenders faced sharply higher refinancing costs. According to the latest Bank of Italy data for the month of October, ECB funding to Italian banks rose to 111.3 billion euros ($150 billion). Total borrowing stood at 41.3 billion euros in June.

 

In comments confirmed by a spokesman, UniCredit Chief Executive Federico Ghizzoni told Corriere della Sera daily he would ask the ECB, also on behalf of smaller Italian banks, "to extend the access to ECB liquidity by widening the type of collateral offered." Ghizzoni's visit to Frankfurt for the Euro Finance Week meeting of central bankers, regulators and banking executives, comes two days after Italy's largest bank by assets unveiled a 7.5 billion euros rights issue after booking 9.8 billion euros of writedowns in the third quarter.

V-shaped "recovery" in Italian Yields...

And Italian Bund Spreads:

And here is why LCH margin hike grumblings for Spanish bonds have surfaced.