“With the Italian referendum complete, investors in Europe now await the outcome of Monte’s capital raise”, the report stated, while the US Department of Justice’s settlement with Deutsche Bank is on the horizon.
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Italy’s political vacuum threatens to usher in a period of uncertainty that might weigh on plans to reduce a pile of bad loans estimated at 360 billion euros.
“The difference between Italy and other countries is that in Italy there’s essentially been no state aid or takeovers”, European Central Bank Governing Council member Ewald Nowotny was reported as saying in Vienna on 5 December.
Monte Paschi’s board asked the ECB to extend the deadline to boost capital until January 20 “due to the changed reference context”, the Siena-based bank said in a statement late Wednesday.
Then the endless Draghi bailout of Italy’s zombie banks will end; and that, hopefully, in an orderly way through the institution of the Glass-Steagall legislation which the failed Renzi government has been blocking.
Shares in Monte dei Paschi, one of Italy’s most troubled banks, rose almost 9% on new hopes of a rescue. Buying the bonds, convertible into shares, would raise the government’s stake to 40 percent from 4 percent.
Market participants are also expecting that the European Central Bank will extend its asset purchase program by six months when it reviews its monetary policy on Thursday. Chief executive Tim Sloan said at an investor conference that the bank’s profits were likely to be hit in the short term by higher interest rates, but on longer term, the hike would be beneficial. Intesa Sanpaolo rose 2 percent after earlier falling around 5 percent, while UniCredit shed 0.4 percent having earlier dropped as much as 6 percent. “This problem should have been resolved months ago”, said one large investor in Italian banks.
Under EU rules, rescuing banks would mean imposing losses on their investors. And 210 billion euros ($225 billion) of those loans are considered to be insolvent. The meeting will discuss the situation at Monte dei Paschi, a source familiar with the matter said.
Monte dei Paschi, which was founded in 1472, is one of the weakest banks in Europe.
Even at the height of the euro zone’s debt crisis, Italy had resisted calls to inject public money into its banks or ask for an European Union bailout.
Alberto Chiandetti, fund manager at Fidelity, said: “Monte dei Paschi last week obtained less Tier 2 debt conversion than expected (€1bn versus the expected €1.5bn-2bn), but now the focus is on whether an anchor investor will materialise or not”.
Jefferies analyst Oliver Salvesen said Drax’s plan would help it shift from its existing commodity-exposed business towards a more diversified model and expand its customer base.
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The health of Italian banks is particularly relevant to EWI because the ETF allocates 29.6 percent of its weight to those stocks, or 540 basis points more than its weight to energy, its second-largest sector exposure.
