Local securities infected by the ‘Italian virus’

Greek securities came under renewed selling pressure yesterday as a rout in Italy’s bond market eroded appetite for riskier eurozone assets. In the fixed income market, the yield on Greece’s 10-year benchmark bond jumped 14 basis points to 4.65 percent. The banking index in the Greek bourse has now shed more than 37 percent this year, with the sell-off intensifying in early October on fears that banks’ efforts to reduce their bad loans burden will prove difficult, affecting profitability prospects. “We are in a riskoff environment as long as bonds remain under the hammer. This hits bank shares across the European south,” said a Greek bank treasurer. “We have been affected by the Italian virus. The pathology is known, what triggered the sell-off was the market’s magnifying glass which focused on the tough part ahead to reduce bad loans as a war of words erupted between Rome and the EU over budget plans,” the treasurer said. Last week bankers and government officials confirmed that Athens is considering an asset protection scheme to help its banks offload soured loans and speed up the cleanup of balance sheets. The scheme may involve state guarantees. “The creation of an asset protection scheme, in which the Greek government provides insurance for the sector’s bad debts, would go some way to stem the sell-off in Greek bank shares, were it to not require any losses from private sector investors,” Fitch Solutions, a unit of Fitch group, said in a report. “Such a situation would shift risks from the Greek banking sector to the Greek government,” it said.