Italian Banks show recovery, amid bailout hopes

Italian bank shares rally over bailout hopes.

Italian banks have showed signs of recovery on Wednesday, after a heavy referendum defeat led to the resignation of Prime Minister Matteo Renzi.

Following the Italian people’s overwhelming “No” response to proposed constitutional reforms, Italian banking shares plummeted amidst concern over the country’s political instability.

However, shares in the world’s oldest bank – Monte dei Paschi – rose by almost 9 percent as the prospect of a government bailout looked increasingly likely. The bank performed the worst in Europe in stress tests over the summer, as its sizeable amount of debt continues to take its toll.

Both Italian and international newspapers have speculated that a government bailout may be on the horizon, prompting the rise in share value for the troubled banks. A deal with a private investor looks increasingly unlikely, now the country has been left without a leader.

Italian daily La Stampa reported that the Italian government may look to the European Stability Mechanism (ESM) for funds of around €15 billionn (£12.7 billion) to help with the financial rescue.

Additionally, Reuters stated that various unnamed sources anticipate the government taking as much as a €2 billion stake in Monte dei Paschi, following the collapse of a potential private rescue bid from external investors.

Italy however, has already been warned by the EU commission that it may violate rules regarding excessive debts of member countries. The EU Economics Affairs Commissioner, Pierre Moscovici, noted that the strain on Italian finances arose from the recent devastating earthquakes that struck central Italy, and that he expected that the commission would take this factor into consideration.

The ESM, which deals with European bailout funding, has stated that the Italian government has yet to initiate discussions. A spokesperson stated:

“There is no request and there are no discussions with the Italian authorities on an ESM loan.”

Amid the speculation other banks’ shares are rallying, seeing a 3 percent rise for the Italian banking sector.

Previous articleMarkets bracing for Fed rate hike – but is it too soon?
Next articleRussia sells $11 billion stake in Rosneft
Nicole covers emerging global economic and political events for The UK Investor Magazine. Her focus is particularly upon company news and political developments in Europe and the US.