Italian Banks Raised to Neutral at Citigroup on Cleanup

Italian banks were raised to neutral from underweight at Citigroup Inc., which cited lower bond yields and a European Central Bank’s asset quality review, which may bring cleaner balance sheets.

Citigroup Inc. raised UniCredit SpA (UCG) to buy from neutral and Intesa Sanpaolo SpA (ISP), the country’s second-largest lender, to neutral from underweight, analyst Azzurra Guelfi said in an e-mailed report from London today.

Italian banks are “getting closer to the end of the tunnel” and the recent sell off could be an opportunity, Guelfi said. “We now expect them to benefit from a better macro and more self-help --cleaner balance sheet after AQR, increased efficiency, than we envisaged previously.”

The ECB is conducting an inspection of European banks’ assets to ascertain whether they are strong enough to withstand a future financial crisis. Italian banks’ non-performing loans are among the highest in Europe, raising concern they may need to raise capital to provision for them.

The biggest risks, including high levels of bad loans and low profitability, “could swing sharply and become the biggest opportunity,” helped by a possible clean-up coming from the ECB review, Guelfi said.

UniCredit climbed as much as 2.6 percent and rose 2.2 percent to 5.62 euros at 10:44 a.m. in Milan. Intesa climbed 0.7 percent to 2.1 euros. The FTSE Italia All-Share Banks Index gained 1.1 percent.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net; Francesca Cinelli in Milan at fcinelli@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.