Italian Lenders Slide on Vote Worries to Drag Down Europe Stocks

Updated on
  • FTSE MIB among worst performers in western European markets
  • Spread widens between Italian and German bond yields

European Stocks Trade Lower

Italian lenders declined on rising concerns about risks to their financial stability from the upcoming referendum, bringing an end to a three-week rally in European shares.

Banca Monte dei Paschi di Siena SpA, the lender burdened by bad loans and under pressure to raise fresh money, tumbled 14 percent. UniCredit SpA and Intesa Sanpaolo SpA fell at least 3.2 percent, dragging the FTSE MIB Index to one of the worst performances in western-European markets. The Financial Times reported yesterday that as many as eight Italian banks risk failing if Renzi loses the vote.

“It’s a nervous market at a time when liquidity isn’t great,” said Kevin Lilley, a manager of euro-area equities at Old Mutual Global Investors in London. His firm oversees the equivalent of $32 billion. “We have more political and economic uncertainties that need resolving. People are getting worried about the impact that a power vacuum in Italy could have on the refinancing needs of its banks.”

After the U.K.’s vote to leave the European Union and Donald Trump’s unexpected U.S. election win, investors are on edge about the prospects of political and economic instability should Prime Minister Matteo Renzi lose the Dec. 4 referendum on constitutional reform. The Stoxx Europe 600 Index declined 0.8 percent at the close in London, with the volume of shares changing hands about 17 percent lower than the 30-day average.

A gauge of Italian lenders on Monday closed at its lowest level in more than three months, taking its 2016 slump to 52 percent. The spread between Italian and German 10-year government bond yields widened two basis points to 186 basis points. Italy’s securities have been the worst performers globally in the past month, according to Bloomberg World Bond Indexes.

The “Italian referendum is the next big political event,” Azzurra Guelfi, an analyst at Citigroup Inc. wrote in a note Monday. “Higher sovereign spread and higher market volatility could negatively impact bank balance sheets given the large sovereign exposure.”

Other European lenders also declined. Royal Bank of Scotland Group Plc lost 2.6 percent on a report it may struggle to sell all of its Williams & Glyn unit, while Banco Popular Espanol SA slipped 7.8 percent after Credit Suisse Group AG said its shares don’t fully reflect risks from a potential spinoff.

The Stoxx 600 declined today after rebounding 4.2 percent from a Nov. 4 low amid speculation that Trump’s administration will increase fiscal spending.

— With assistance by Francesca Cinelli

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