Further pain for the European banking sector as some of Italy’s banks shares dropped dramatically today.
The Euro Stoxx Banks are nearly 19% down from its pre-referendum levels. Italian Banks are suffering the most with the likes of Unicredit, Intesa, Banco Monte dei Paschi and UBI down on average ten percent from last week-with Banco Monte dei Paschi down -15.79.
Although there has been plenty in the press about possible liquidity guarantees and fresh injection of capital for Italian Banks , the problem according to some analalyst’s that is just the tip of the iceberg. Fresh reports is that Italy is planning a reportedly € 4o billion euro injection of funds to ease tensions,.
The FT report this week ran the storythat Italy PM Renzi is prepared to defy Brussels and do as put many billions as he needs should it come under severe problems even if he is to break the bail-out principles of EU regulations.
That story, however, was denied today when La Repubblica reported that Renzi will respect European Union rules on state aid for banks, an Italian official said on Monday. It remains to be seen he will stick to this commitment especially if the collapse in Italy’s banking sector continues.
The biggest problem it appears is the consistently troubled, insolvent and repeatedly bailed out Banca Monte dei Paschi di Siena, the world’s oldest bank.The world’s oldest bank, which has been balied out twice by Italian authorities , has been told by the ECB it needs to shed another €10bn in bad loans, sparking major concerns for the Italian banking sector.
Shares in the bank and incidentally taly’s third-largest lender, fell by 13 per cent on Monday to an all-time low after which in turn has allowed the slide of the country’s largest lenders to be dragged down with it.
Unicredit was also down to an all time low , down by 3.8 % , The FTSE Italia All-Share Banks index was down 3.7 per cent. It has lost nearly 56 per cent of its value this year.
Monte dei Paschi will more than likely need to boost its capital — a situation that will prove very costly and difficult for the bank.
Oddly when Spain and Ireland, were in this situation 2008 and were forced into international bailout programmes when they proved unable to fund multi billion-euro clean-ups of their banking sectors, Italy has never conducted a an overhaul of its financial institutions to doing the same
With a debt level that is only second to Greece in the Eu , the Italian government is in a very precarious position as it looks for a solution. The problem the Italian Pm faces is looking at whether he should or not bypass the era EU banking rules to bail out the banking sector using public funds.
The Italian PM is looking to find market solution for Italy’s banks and has already initiated discussions with the European Central Bank in order to understand all the indications included and then will be the end of July present long term solutions to the burdening issue.