Shares of the world’s oldest Bank, Italian Monte dei Paschi di Siena, fell to a record in the nearly 550-year history of the minimum. According to Financial Times, this happened after it became known that the European Central Bank has demanded from Bank to significantly reduce the volume of bad loans.
In 2015, the total volume of bad debts amounted to €46.9 billion of the ECB’s demands to lower it to €38.9 billion by the end of 2017, and then to €32.6 billion by the end of 2018. The net volume should be reduced from €24.2 billion in 2015 to €18.4 billion by 2017 and €14.6 billion by 2018.
Selling such a large portfolio could force the Bank to start looking for additional funds that investors provide not”, quotes Bloomberg the opinion of IG Markets strategist Vincenzo Longo. Since last year, Monte Paschi had already sold a portfolio of bad debts by €2 billion In may 2016 Bank CEO Fabrizio viola said the Bank will enhance its work in this direction.
Shares of Monte dei Paschi di Siena 4th of July decreased from the peak in March last year, almost 86%, from €2,527 per share to €0,3508. Since the announcement of the outcome of the referendum on UK membership in the EU June 23 — 35.5%, from €0,5435 per share. Paper Bank are traded on the Italian stock exchange (Borsa Italiana).
Monte dei Paschi di Siena — the biggest problem the Bank of Italy. He and six other Italian banks were among the 10 banks included in the STOXX 600 Banks Index, the shares of which are after the referendum has fallen the hardest. The Italian banking system is one of the most vulnerable to the consequences of Brexit. As of April the total volume of problem loans in the sector amounted to approximately €360 billion.
Due to the fall in the value of shares and large portfolios of problem loans, banks may fail the next round of stress tests of the European banking authority (EBA), the results of which will be released on July 29.
Now Italy is negotiating with the European Commission about a plan to recapitalize their banks. As he told the Financial Times, unnamed officials and bankers familiar with the plans of the authorities of the country, Prime Minister Matteo Renzi was ready to pour into the country’s banking system billions of euros from the state budget, if necessary to limit losses of investors. Rome is considering the use of funds of the state Bank Cassa Depositi e Prestiti and state pension funds for the recapitalization of banks, and discusses the issue of increasing the volume of state support of private Fund Atlante, designed to support weak banks. Among the possible recipients of state funds Monte dei Paschi di Siena, said the sources. Such measures are contrary to EU rules for dealing with troubled banks, according to which the saving banks have to go the money lenders, not taxpayers.
European officials fear that the intervention of the Italian authorities would indicate the possibility of illegal state support of the financial sector and will scare away private investors. Last week German Chancellor Angela Merkel rejected a request from Italy on the suspension of the rules of the European Union on the bailout for the recapitalization of Italian banks and the ECB Executive Board member Benoit coeure said that the suspension of the rules means the end of a banking Union, “as we know it”.
As reported by Bloomberg, according to an unnamed official, Renzi will continue to comply with EU rules on state support for banks.