Italian bank shares surge as government wind-down of failed regional banks boosts embattled sector

Jasper Jolly
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The Milan skyline is seen from the roof
Non-performing loans have weighed on banks in Milan, Italy's financial hub, since the Eurozone crisis (Source: Getty)

Italian bank share prices have surged in Monday morning trading after the country’s government finalised a deal to wind down two failed regional lenders.

The government bit the bullet on securing a bailout deal at the weekend, in a move that economists say removes at least part of the threat looming over the fortunes of the Italian banking sector.

Shares in Milan-headquartered Unicredit rose by 3.23 per cent on the Borsa Italiana. Meanwhile stock in Banco BPM, the group created at the start of the year after the merger of Banco Popolare and Banca Popolare di Milano, gained 3.34 per cent at the time of writing.

Read more: Italy faces €17bn bill in deal to wind down two failed banks

Shares in Mediobanca, also based in Milan, rose by 3.57 per cent, with the FTSE MIB index, which tracks the biggest Italian companies, gaining 1.44 per cent.

The Italian government started the process of winding down Banca Popolare di Vicenza and Veneto Banca on Sunday, in a deal which could cost as much as €17bn (£15bn).

Italy's banks have been weighed down by the burden of non-performing loans offered before the Eurozone debt crisis dented borrowers' ability to pay back their debt. Bank balance sheets had bad debts with a nominal value of €350bn at the end of 2016.

Intesa Sanpaola, Italy’s largest retail lender, will take over the good assets of the failed banks, receiving a €5.2bn cash injection in order to retain a big enough capital ratio.

Read more: Italian banks face another €10bn of bad loan writedowns

In a note to clients yesterday, Erik Nielsen, group chief economist at UniCredit, said: “It is indisputably good – and long overdue - news for Italy (and for Europe more broadly) that this long-simmering issue of Italy’s troubled banks finally gets resolved.

“Markets had been hoping for a pragmatic solution these past few weeks, and with this ballast removed, the favourable European economics should gain more prominence in equity markets again.”

Michala Marcussen, chief economist at Societe Generale CIB, said: “Actually addressing the issues (as opposed to kicking cans down the road) should be good news medium-term, albeit that there may be some short-term headwinds to overcome.”

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