Relief rally fails to cheer Italy’s banks

INVESTORS surged back into Italian banks yesterday but still failed to lift their shares above levels seen before Monday’s dramatic sell-off.

Overall, Italy’s main lenders have seen their share prices plunge over the last week since political infighting sparked a panic over the country’s debt levels.

UniCredit rose 6.2 per cent yesterday but is down 14.3 per cent over the week; Intesa Sanpaulo is down 11.3 per cent week-on-week despite a rise of over three per cent yesterday; and Mediobanca is still 8.8 per cent below its price a week ago despite a rise of two per cent yesterday.

The volatility is being driven by the high degree of uncertainty as to how much exposure banks have to their sovereign’s debt and how quickly any credit problems could spread throughout the financial system.

James Babicz, head of risk at SAS UK, says: “It’s the unknowns – investors don’t know how bad it possibly could be… Now that this crisis has sprung up in Italy, we don’t see a real leader from that country saying ‘here’s how we will address it’.”

The fear has also driven investors out of UK banks. Barclays suffered most, falling 2.5 per cent after Collins Stewart deemed the bank to be one of the most vulnerable to Italy’s troubles, saying it has “substantial retail and wholesale exposures”.

Lloyds dropped 2.1 per cent and HSBC 1.2 per cent, but RBS bucked the trend to post a small share price rise.

The anxiety has caused investors to turn their attention to Europe’s bank stress tests, due out this Friday. Evolution Securities’ Gary Jenkins said that the volatility means: “The result of the European bank stress tests have become even more important.”

If the tests are not sufficiently informative, however, they could add to market fears.