The exposure of Europe's major financial institutions to domestic sovereign debt is on the rise, "now 9% of assets, up from a trough of 6% in September of 2009," FT writes.
Data from Citi shows European banks' total exposure (as a percentage of their balance sheets) to the general government debt of the country in which they are domiciled is generally below peak levels but is still well above the historical average for most of the periphery including Spain, Italy, Portugal, and Ireland.
"Although increased exposures are clearly part of ‘financial repression’ and ‘carry trade’, part of this is also a ‘natural’ trade-off from ongoing balance sheet deleveraging," Citi says.
Credit Agricole (CRARF.PK) leads major European banks higher, rising 4.7% after regulators ease Basel liquidity rules, followed by Deutsche Bank (DB) +4.3%, Unicredit (UNCFY.OB) +4.3% and Barclays (BCS) +3.7%. Also, SocGen (SCGLF.PK) +3.4%, HSBC (HBC) +0.75%, Lloyds (LYG) +1.9%, Santander (SAN) +2%, RBS (RBS) +1.5%, UBS (UBS) +2% and Credit Suisse (CS) +3.4%. Italy's Banca Monte dei Paschi di Siena (BMDPY.PK) +15%.
Trading in Italian banks was suspended earlier following sharp falls, although it seems to have resumed for at least UniCredit, which is -6.5%. Intesa Sanpaolo -9%, Banca Monte dei Paschi -9%. Milan shares -4.9%, yields on 10-year government bonds +19 bps to 6.35%.