Italy's €5bn bailout fund for ailing banks has failed to prevent further share sell offs

Billy Bambrough
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One of Italy's biggest banks, Banca Monte dei Paschi, is often tout as the oldest bank in the world (Source: Getty)

Italy’s most sound financial institutions have poured cash into a €5bn (£4bn) bailout fund for the country's vulnerable lenders in an attempt to calm investor fears over the stability of the beleaguered sector.

Shares in two of Italy’s most troubled banks bounced today however, with Monte dei Paschi di Siene and Banco Popolare shares climbing by 10 per cent before crashing back down to earth.

Monte dei Paschi erased its gains through out the day to close up just one per cent. Banco Popolare finished down by 0.75 per cent.

Read more: Italian bank UniCredit to cut 18,200 jobs

The FTSE Italia Banks Index finished the day down by 3.7 per cent. Banks had gained around 15 per cent since last week when the fund was first reported.

Italian banks were especially hard it by a sell off in banking stocks earlier this year.

The so-called Atlante fund is meant to purchase shares and bad debt in banks that are struggling, that it is thought will satisfy European regulators.

Private fund manager Quaestio Capital Management announced the deal, saying:

Following meetings with a vast number of institutional investors, banks, insurers, banking foundations and [state lender] Cassa Depositi e Prestiti, Quaestio has gathered many subscribers to launch the Atlante Fund.

UniCredit, Intesa Sanpaolo, and UBI Banca will contribute the lions share of the cash, with other banks, insurers and asset managers making up the remainder.

Read more: Barclays sold its Italian retail bank to Mediobanca's CheBanca

Economists are concerned that a banking collapse in Italy, the eurozone’s third-largest economy, could plunge the eurozone into fresh crisis.

Italy's banking industry is currently wallowing under €360bn of bad debt, making up around a third of the eurozone's total.

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