Ital­ian banks on knife edge as Renzi quits

In­vestors fear threat to re­cap­i­tal­iza­tion plans

Kuwait Times - - BUSINESS -


The fate of key Ital­ian banks was up in the air yes­ter­day as in­vestors feared that Prime Min­is­ter Mat­teo Renzi’s res­ig­na­tion will threaten their re­cap­i­tal­iza­tion plans.

Con­cern fo­cused on Italy’s third-big­gest bank, Monte dei Paschi di Siena (BMPS), which an­a­lysts said is one of the coun­try’s most vul­ner­a­ble large lenders. Bank­ing stocks went through a roller­coaster ride on the Mi­lan bourse fol­low­ing Ital­ian vot­ers’ re­jec­tion of con­sti­tu­tional re­form that prompted Renzi’s an­nounce­ment that he would quit.

They opened sharply lower Mon­day, and then re­cov­ered, be­fore plung­ing again, with UniCredit down 3.2 per­cent, Banca popo­lare di Mi­lano 2.4 per­cent, Banco popo­lare 2.0 per­cent and Me­diobanca 1.3 per­cent ap­proach­ing mid­ses­sion. BMPS, which is the world’s old­est bank, has lost 84 per­cent of its mar­ket cap­i­tal­iza­tion since the start of the year. It also emerged as the worst performer from Euro­pean Bank­ing Author­ity (EBA) stress tests in July.

To en­sure its sur­vival, the bank has launched a plan in­volv­ing the spinoff of 27.6 bil­lion eu­ros ($29.4 bil­lion) worth of non-per­form­ing loans, com­bined with a cap­i­tal in­crease of up to five bil­lion eu­ros. But the ques­tion is now whether lin­ger­ing po­lit­i­cal un­cer­tainty will scare in­vestors off.

“If there is no so­lu­tion to the govern­ment cri­sis within a cou­ple of weeks, fi­nan­cial mar­kets will start get­ting jit­tery again,” said Lorenzo Codogno, a for­mer Ital­ian Trea­sury of­fi­cial and now a pro­fes­sor at the Lon­don School of Eco­nom­ics. “Prob­a­bly the cap­i­tal in­crease of Monte Paschi will be post­poned or out­right can­celled, and all other op­er­a­tions would be stalled.”

While in­vestors fo­cus mostly on BMPS for now, the rest of the sec­tor is far from im­mune to fur­ther panic, an­a­lysts said, point­ing to the Mi­lan’s FTSE All-Share bank­ing in­dex, which has lost 47 per­cent of its value since Jan­uary. The ref­er­en­dum re­sult is adding to deep wor­ries about the fail­ure of the Ital­ian bank­ing sec­tor-which fea­tures no fewer than 700 banks-to make mean­ing­ful progress to­wards con­sol­i­da­tion. And this, de­spite non-per­form­ing loans on their books amount­ing to a com­bined 360 bil­lion eu­ros, roughly a third of the eu­ro­zone’s to­tal bad debt.

‘A step back’

Ahead of the ref­er­en­dum, BMPS man­aged to raise one bil­lion eu­ros via a vol­un­tary con­ver­sion of bonds into cap­i­tal. But all bets are off for the re­main­ing four bil­lion. “The real risk lies with Monte dei Paschi di Siena. It’s easy to imag­ine that in­vestors who wanted to take part in the cap­i­tal in­crease will now take a step back,” said Um­berto Borgh­esi, fund man­ager at Albe­marle As­set Man­age­ment.

“What is needed is a clear re­sponse on any govern­ment in­ter­ven­tion, bail-in de­ci­sion or any other so­lu­tion,” he said. A “bail-in” forces ex­ist­ing cred­i­tors to write off part of their claims. “No po­lit­i­cal for­ma­tion can shoul­der the re­spon­si­bil­ity of Monte dei Paschi fail­ing,” Borgh­esi said.

If in­vestors re­ally get cold feet, then UniCredit, Italy’s big­gest bank, could be the next gi­ant to feel the pain, an­a­lysts said, as it un­der­goes a mas­sive strat­egy re­view. It hopes to raise up to 13 bil­lion eu­ros of fresh cap­i­tal early next year and an­a­lysts agree that the out­look for UniCredit is still favourable as it could also sell as­sets to fill cap­i­tal gaps.

In the mean­time, smaller banks like Carige or Veneta Banca are in much more im­me­di­ate dan­ger of fall­ing vic­tim to the on­go­ing cri­sis, an­a­lysts say. —AFP

BRUS­SELS: Eurogroup fi­nance min­is­ters wait prior to take part in a Eurogroup fi­nance min­is­ters meet­ing at the Euro­pean Coun­cil in Brus­sels yes­ter­day. —AFP

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