Italian bank stocks tank on referendum concerns
Italian bank stocks tanked on Monday, dragging the FTSE MIB down with them amid worries the country’s upcoming referendum on constitutional reform could precipitate the fall of Prime Minister Renzi’s government.
Banca Monte dei Paschi di Siena
€4.79
19:00 18/10/22
Banca Popolare Dell Emilia Romagna Scarl
€4.94
19:00 18/10/22
Banca Popolare di Milano
€0.36
16:25 02/01/17
DJ EURO STOXX 50
4,921.22
00:00 01/05/24
UniCredit
€8.88
19:00 04/02/21
At 1015 GMT, UniCredit, Banca Monte dei Paschi di Siena, Banco Popolare Societa Cooperative, Banca Popolare dell’Emilia Romagna, Mediobanca, and Banca Popolare di Milano were all sharply lower. Meanwhile, the FTSE MIB was 1.8% weaker at 16,213.98, underperforming its European peers.
On 4 December, Italians will be asked to decide whether to accept a package of constitutional reforms put forward by centre-left Prime Minister Matteo Renzi, who has said he would resign if the proposals are rejected.
Market participants are concerned that if the outcome is a 'no' vote, political uncertainty will ensue, making the task of sorting out non-performing loan issues at the country’s banks even more difficult.
Pressure is mounting on Renzi to remain in power in the event of a ‘no’ vote to avoid a full-blown banking crisis, as the most recent opinion polls predict his defeat. It is illegal to publish opinion polls in the last two weeks of campaigning, but the last 40 surveys out before the cut-off point revealed the ‘no’ camp was ahead by as much as 11 percentage points.
Accendo Markets’ Mike van Dulken said: “No vote in next Sunday’s Italian constitutional referendum could mean the toppling of PM Renzi and death toll for some of the country’s battered banks. Fears are that an Italian dissent and resulting market turmoil would dissuade already gutsy investors from daring to participate in desperately needed recapitalisations within a very troubled €4tn banking system.
“If they don’t Brussels may be forced to step in and wind them up, whatever the cost to all investor, not just shareholders. This is serving to revive memories of the dark days of the Eurozone debt crisis with risk that financial contagion fear spreads across the continent like wildfire.”
Meanwhile, Neil Wilson, senior market analyst at ETX Capital said: “A No vote would make the necessary overhaul of Italy’s banks a lot tougher. Investors would be deterred from pumping in the fresh capital required and we’d likely see the government have to bail in bond holders. BMPS’s recapitalisation, set to take place just after the vote, could very easily flop.
“The risk of contagion spreading through the rest of Italy’s banks and other European lenders is high. BMPS alone has to shed €28bn in bad loans by the end of the year. It’s very hard to see how the banks can do this kind of toxic clean-up without significant fresh capital.”
Wilson pointed out that Italy has about €400bn in non-performing loans – around a third of all the bad debt in the Eurozone – which need to be cleaned out fast.
“Without a 'yes' vote that task could be all but impossible without imposing significant losses on creditors.”
Later on Monday, Banca Monte dei Paschi di Siena will begin swapping €4.3bn subordinated bonds for equity, as it looks to raise about €1bn as part of its its turnaround plans. The offer is aimed at retail and institutional investors, with the exception of a €2.1bn 2018 Upper Tier II bond, which is only for retail investors.