UK Edition
Banks predict Italy will fudge a new bailout
Italy is likely to be able to muddle through a series of bank bailouts in a way which props up its struggling banks but also protects bond investors, according to Bank of America Merrill Lynch.
Prime Minister Matteo Renzi is at loggerheads with Brussels as the EU insists that investors take losses before taxpayers stump up cash, while the Italian government wants to protect investors, as many households have bought the banks’ bonds.
Bank of America estimates that 14.6pc of Italian household wealth is tied up in bank bonds – amounting to €235.6bn – and so bailing them in to recapitalise the banks, as EU rules demand, would be very painful.
A new focus on Italian banks’ huge problem with bad loans has sent shares tumbling. While most banks across Europe have fallen this year, Italy’s have fallen more – Intesa Sanpaolo has dived by 44.8pc so far this year, more than any other bank in the top 10 in Europe.
That dive has dragged it down from the sixth biggest bank by market capitalisation to the 10th biggest, according to S&P Global Market Intelligence.
But Bank of America’s Chiara Angeloni believes the current clash between Italy and the EU will be resolved in the coming months.
“This may not be an easy trade-off for Italian or European officials. But European directives have enough flexibility to deal with such a situation, we think. There are escape paths available for particular circumstances,” she said.
Those could include making investors take a hit before compensating them later, exempting the retail – or potentially all – bondholders from bail in rules, or bolstering the private rescue fund Atlante.
The analyst said that UK politics may also help: “Brexit has increased pressure on the EU to be more sensitive to the specific needs of a single country.”
Deutsche Bank’s chief economist David Folkerts-Landau called for a €150bn bank bailout fund to be established, giving the authorities the clout to recapitalise troubled lenders in the eurozone.
Meanwhile Italian bank Unicredit said it is selling a 10pc stake in FinecoBank, worth around €340m at current market prices, as the bank announced an "in depth strategic review" following the appointment of new chief executive Jean Pierre Mustier.
At the same time Santander played down reports that the merger between its asset management arm and Unicredit's Pioneer fund management business will be called off.
"We have a signed agreement in place and everything else is pure speculation," said a spokesperson. “We await a number of regulatory responses for the transaction.”