Shares in troubled Italian bank rise on rescue deal

MILAN – Shares in troubled Italian bank Monte dei Paschi di Siena rose Monday as a capital infusion means the bank won’t be nationalized. But the shares of other Italian banks fell as investors focused on the scale of their mountain of bad loans.

Monte dei Paschi was by far the worst performer in stress tests of 51 European banks but sought to head off any speculation about its future with the announcement late Friday of a 5 billion euro ($5.6 billion) capital injection from investors. That eased concerns that the government would have to take over the bank.

On Monday, shares in the bank closed 0.6 per cent higher at 0.31 euros after trading up 7 per cent much of the day.

Other Italian banks, however, saw their shares fall sharply, with Italy’s biggest bank, UniCredit, tumbling 9.4 per cent to 1.99 euros.

Analysts said it could be that investors were hoping that UniCredit had done better in the stress tests. Its key measure of financial health — called common equity tier 1 capital — was 7.1 per cent in a simulation of a sharp drop in the economy. While that is good enough to avoid any immediate need to raise capital, it was among the weaker showings.

Jack Allen, European economist at Capital Economics, said it could also be due to the fact that “Monte dei Paschi was so weak that they would have to offload their non-performing loan book and UniCredit could be on the hook for that.”

In a previous move to help the Italian banking sector, larger groups like UniCredit had helped fill a fund, called Atlante, which was tasked with recapitalizing more troubled banks such as Monte dei Paschi.

Italian banks are estimated to hold 360 billion euros ($400 billion) in soured loans that will have to be partly written off.