Deutsche Bank cut its net exposure to Italian government debt by 88 per cent in the first six months of the year in a dramatic sign of international investors backing away from the eurozone’s third-largest economy.
Stefan Krause, Deutsche’s chief financial officer, linked the dramatic reduction in Italy to the first-time consolidation in December of Postbank, a German retail bank that had large Italian holdings. He added that Deutsche had bought credit default swaps – a form of insurance for investors – to hedge its Italian exposure in its trading book.
Deutsche’s revelation comes at a fragile time for Italy, which has seen its market borrowing costs soar since the start of June on worries that it could become embroiled in the
eurozone debt crisis. Italy, which has the second-highest debt-to-GDP ration in the single currency area behind Greece, now pays a premium of 2.89 percentage points to borrow over Germany, compared with 1.57 percentage points at the start of June.