Monday 2 May 2016 11:33 am

Italy's banking crisis deepens as failed capital offering sends stocks plunging across the industry

The Italian banking sector took yet another blow over the weekend as one of its lenders failed to raise extra capital from shareholders causing stocks to plunge on Monday morning.

Private sector investors agreed to buy just 7.7 per cent of the €1.5bn (£1.18bn) capital offering from Banca Popolare di Vicenza, which had been told by the European Central Bank (ECB) to improve its capital buffers. The government rescue fund Atlante was forced to step in to complete the cash call.

The rest of the Italian banking sector, which funds Atlante, plunged at the open this morning, as more investors decided to reduce their exposure to the troubled industry.

Read more: Italy's rescue fund hasn't stopped more share sell offs

Unicredit, Italy's largest bank, was down by as much as six per cent within the first hour of trading, before recovering slightly to stand at €3.26 – down 3.3 per cent.

The picture was the same across the industry, with most of Italy's largest banks – UBI Banca, Banco Popolare di Milano, Banco Popolare, Banca Monte dei Paschi and Banca Popolare dell'Emilia Romagna – all down by three per cent or more.

Intensa Sanpaolo, the second largest bank, managed to buck the trend, as it clawed back early losses to stand up 0.33 per cent at €2.43 at mid-morning.

Read more: European bank shares are tanking

Banks across Europe – in particular in Italy – have had a torrid year with volatility on the stock markets and the extension of negative interest rates by the European Central Bank (ECB) taking their toll. The Eurostoxx 600 banks index is down by more than 30 per cent on the year.

The International Monetary Fund (IMF) recently warned that one-third of Europe's banks would struggle to be profitable if they do not change their business model, as it raised concerns about high levels of non-performing loans and the squeezing of net interest margins because of negative interest rates.