MILAN (Reuters) - Shares in leading Italian banks UniCredit (LON:0RLS) and Intesa Sanpaolo (BIT:ISP) fell sharply on Friday following a sell-off in U.S. and Asian banks driven by concerns lenders potentially face losses on their government bond portfolios.
The rise in interest rates has hammered the value of those portfolios, with Italian banks seen as particularly exposed given the risk premiums investors demand to hold Italian paper rather than higher-rated German government bonds.
Banks have limited the hit to their capital reserves by classing increasingly larger portions of their bond portfolios among assets held to maturity, which prevents them from having to value them at current market prices.
However, European Central Bank Chief Supervisor Andrea Enria warned last November that "this accounting configuration gives a false sense of security in the face of shocks and volatility, in that actual changes in fair value are not reflected in the banks' earnings and regulatory capital figures."
By 0820 GMT shares in UniCredit lost 4.5% and Intesa (LON:0HBC) around 4%.
The sell-off overnight was sparked by a capital raising at SVB Financial Group, a small Silicon Valley bank that had to sell bonds at a loss to repay depositors.