On Sunday the 4th, Italians have voted on the constitutional reform proposed by Mr. Renzi, who has decided to resign after the proposal been rejected. This will now lead to a period of deep uncertainty, politically speaking, in a moment of great importance for the Italian market as a whole and for the banking sector in particular.
As a matter of fact, Monte dei Paschi di Siena (MPS) shareholders approved a €5bn capital increase some weeks ago, and soon after yet the price fell for the fear of another turmoil in these days. The next hours will be decisive for MPS which remains at the moment the most important problem for the Italian banking system. In the bank's plan the launch of the capital increase should be before Christmas, but considering the outcome of the referendum, it is not excluded that the board decides at the last minute to take some more time. But the operation has to be done, and as soon as possible: the ECB has asked MPS to strengthen the capital at the beginning of the summer, and is now breathing down the neck of the "Sienese" bank.
If the capital increase fails, the future of MPS would be marked: State aid and resolution with bail-in. In recent days, in fact, it has gone on the negotiations with the European authorities to develop a plan B that includes the nationalization of the bank and a bail-in as soft as possible for families and small investors overwhelmed by the bad management of the institution. But the eventual resolution of MPS will result in a chain reaction throughout the system.
Although MPS’s future is the most at stake, it is not the only one: a loss of confidence in the Italian system will put at risk up to other seven banks, according to the Financial Times. Popolare di Vicenza, Veneto Banca, Carige, as well as other four small banks, are known to be in distress and a failure of Monte dei Paschi’s recapitalization plan could put them into resolution and perhaps affect also the Unicredit capital raise in 2017.
The contagion fear caused a decline across the entire European financial sector, with the Euro Stoxx banking sub-index closing 2.2% lower on Monday. In point of fact, senior bankers and institutional investors see Italian economy’s problems as a long-term risk for the euro area. According to the European Central Bank data, Italian banks hold almost a third of total unpaid loans in Europe. Moreover, a political instability could mean an increase in support towards the Five Star Movement, a populist and Eurosceptic party, which wants to hold a referendum on whether Italy should leave the European Union or not. Even though that could be a remote possibility, the lack of certainties surely does not help the Italian market to gain back the investors’ trust.
However last week, after going down on Monday, banks stocks climbed back on Tuesday, with stocks prices of all major banks, such as Unicredit, Intesa San Paolo and UBI Banca, increasing early in the morning.
In these days, different scenarios, from the most optimistic to the most catastrophic ones, are being discussed. However, as Deutsche Bank’s Jim Reid said before the referendum “even though a rejection is probably the most likely scenario, what happens after that is still open to much debate”.
Matteo Renzi
As a matter of fact, Monte dei Paschi di Siena (MPS) shareholders approved a €5bn capital increase some weeks ago, and soon after yet the price fell for the fear of another turmoil in these days. The next hours will be decisive for MPS which remains at the moment the most important problem for the Italian banking system. In the bank's plan the launch of the capital increase should be before Christmas, but considering the outcome of the referendum, it is not excluded that the board decides at the last minute to take some more time. But the operation has to be done, and as soon as possible: the ECB has asked MPS to strengthen the capital at the beginning of the summer, and is now breathing down the neck of the "Sienese" bank.
If the capital increase fails, the future of MPS would be marked: State aid and resolution with bail-in. In recent days, in fact, it has gone on the negotiations with the European authorities to develop a plan B that includes the nationalization of the bank and a bail-in as soft as possible for families and small investors overwhelmed by the bad management of the institution. But the eventual resolution of MPS will result in a chain reaction throughout the system.
Although MPS’s future is the most at stake, it is not the only one: a loss of confidence in the Italian system will put at risk up to other seven banks, according to the Financial Times. Popolare di Vicenza, Veneto Banca, Carige, as well as other four small banks, are known to be in distress and a failure of Monte dei Paschi’s recapitalization plan could put them into resolution and perhaps affect also the Unicredit capital raise in 2017.
The contagion fear caused a decline across the entire European financial sector, with the Euro Stoxx banking sub-index closing 2.2% lower on Monday. In point of fact, senior bankers and institutional investors see Italian economy’s problems as a long-term risk for the euro area. According to the European Central Bank data, Italian banks hold almost a third of total unpaid loans in Europe. Moreover, a political instability could mean an increase in support towards the Five Star Movement, a populist and Eurosceptic party, which wants to hold a referendum on whether Italy should leave the European Union or not. Even though that could be a remote possibility, the lack of certainties surely does not help the Italian market to gain back the investors’ trust.
However last week, after going down on Monday, banks stocks climbed back on Tuesday, with stocks prices of all major banks, such as Unicredit, Intesa San Paolo and UBI Banca, increasing early in the morning.
In these days, different scenarios, from the most optimistic to the most catastrophic ones, are being discussed. However, as Deutsche Bank’s Jim Reid said before the referendum “even though a rejection is probably the most likely scenario, what happens after that is still open to much debate”.
Matteo Renzi