Italian Bank Shares Slump as Renzi Loss Adds to Uncertainty

  • UniCredit, Monte Paschi under pressure after referendum
  • Renzi resignation may complicate bank plans to raise capital

Italian Referendum: What’s Next for Banks, Government?

UniCredit Group AG and Banca Monte dei Paschi di Siena SpA fell along with most Italian bank shares after Prime Minister Matteo Renzi’s decision to resign added to uncertainty about their plans for shoring up their finances.

Monte Paschi will decide within the next few days whether it will proceed with a planned capital increase, people with knowledge of the matter said. The underwriters, who met with the bank’s executives on Monday, are still waiting for a formal commitment from possible anchor investors, the people said, asking to not be identified because the matter is private. Potential investors are seeking more time to review the political situation after the referendum, according to the people.

A spokesman at Monte Paschi declined to comment.

Italy’s political vacuum threatens to usher in a period of uncertainty that may weigh on plans to reduce a pile of bad loans estimated at 360 billion euros ($386 billion). UniCredit and Monte Paschi are among banks looking to raise capital as part of overhauls to clean up their balance sheets and strengthen profitability.

UniCredit Chief Executive Officer Jean Pierre Mustier said he’s not worried that market volatility will compromise a strategic plan due next week, just as Renzi prepares to step down. "The events overnight won’t change our strategy," he said in a Bloomberg television interview on Monday, without elaborating on the changes ahead.

Mustier is trying to restore confidence in a systemically important lender after a slide in its share price eroded more than 60 percent of the company’s market value this year. Italy’s biggest bank was trading 2.9 percent lower at 5:24 p.m. in Milan, while Monte Paschi was down 4.2 percent, after falling as much as 7.5 percent earlier Monday.

Tapping Investors

Italy’s biggest bank plans to raise as much as 13 billion euros through a combination of asset sales and a stock offering, according to people familiar with the discussions. The bank said Monday it has chosen French investment firm Amundi SA as the exclusive bidder for its Pioneer Global Asset Management SpA investment unit.

Monte Paschi is seeking as much as 5 billion euros by the end of the year to repair its buffers after selling 28 billion euros in bad loans at a loss. While the bank has persuaded investors to swap more than 1 billion euros of subordinated notes for shares, it has yet to announce a large-scale investor and any agreement with the banks that would underwrite a planned public share sale.

“The chances of a successful implementation of the capital plan within the original timeframe (before the end of the year) are slim,” BNP Paribas analysts Geoffroy de Pellegars and Miguel Hernandez said on Monday. If the European Central Bank decides Monte Paschi needs to be recapitalized immediately, it could face a government-backed rescue that would impose losses on bondholders, they said. “The near-term outcome depends entirely on the ECB,” according to the analysts.

Monte Paschi officials are set to meet with members of the Qatar Investment Authority sovereign-wealth fund on Monday to discuss an anchor investment, Il Sole 24 Ore reported on Sunday, citing sources.

“Recapitalization plans for Italian banks will become more difficult, given the strong ‘No’ and pending political paralysis,” Christoph Rieger, head of fixed-rate strategy at Commerzbank AG, said in a note to investors. “Most likely, banks will be given more time in order to avoid a bail-in of sub-debt, which is largely held by retail and would thus further strengthen the populist movement.”

Big Losers

Italian lenders have been among the biggest losers among European stocks this year. Four of the five biggest decliners among the banks tracked by the STOXX Europe 600 Index this year are Italian lenders. Monte Paschi is the worst performer, having lost more than 80 percent of its market value.

Renzi said in the early hours of Monday that he would quit after losing a referendum to push through constitutional changes. During his term, Renzi pushed the country’s many small cooperative banks to become joint-stock companies and encouraged consolidation in the industry. So far, only Banco Popolare SC and Banca Popolare di Milano Scarl have agreed to merge.

“We believe that the announced capital rebuilds could be challenging to complete in this volatile environment,” Azzurra Guelfi, an analyst at Citigroup Inc., wrote in a note Monday. “The pending UniCredit restructuring and potential capital increase could be still be surrounded by volatility."

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