Monte Paschi woes in focus as European markets ease
December 22 2016 09:41 PM
Paolo Gentiloni, Italy’s Prime Minister, speaks during a news conference after a meeting of European Union leaders in Brussels on December 15. The Italian government is prepared to come to the aid of troubled lender Monte dei Paschi if the private rescue failed, he said.


World equities drifted yesterday, with worries about Italy’s Monte dei Paschi di Siena bank creating the only disturbance in the force of pre-holiday inertia.
Across Europe, London’s FTSE 100 rose 0.3 % to 7,063.68 points at close; Frankfurt’s DAX 30 was down 0.1 % to 11,456.10, while Paris’ CAC 40 ended flat at 4,834.63 and Milan’s FTSE MIB also was flat at 19,214.32.
Wall Street was lower approaching midday in New York, slipping a little further away from the elusive 20,000 target on the Dow index.
“The long awaited 20,000 benchmark on the Dow isn’t breached yet and this is likely to keep some traders excited,” said Hussein Sayed at FXTM. Monte dei Paschi (BMPS), the world’s oldest lender, edged closer to a state rescue as its last-ditch plan to raise five billion euros ($5.2bn) of new capital risked falling short.
“Monte dei Paschi remains the major highlight in Europe,” noted LCG analyst Ipek Ozkardeskaya.
BMPS lies at the epicentre of an Italian banking crisis which has cost the troubled firm over 80 % of its market capitalisation over the past year.
Last week it launched an urgent attempt to find, through private investors, the funds needed to shore up its balance sheet.
The bank’s stock posted gains for some of yesterday’s session amid hopes the crisis will end with some kind of viable solution, including a possible rescue by the government.
“A state bailout would at least allow the lender to continue as a going concern,” said David Cheetham at XTB.
But then the bank’s shares slipped back again to close 7.5% lower on the day at €15.08.
Whatever BMPS’s fate turns out to be, investors took heart from the Italian government’s decision to unblock €20bn for the country’s entire banking sector.
“Financials are happy to hear that the sector won’t be left to collapse under the weight of BMPS,” Accendo Markets analyst Michael van Dulken told AFP.
Italian Prime Minister Paolo Gentiloni said the government was prepared to come to its aid if the private rescue failed.
If it came to that, it would use a move known as precautionary recapitalisation, meaning shareholders and holders of junior bonds, a risky class of debt, must contribute to saving the bank.
The plight of the stricken Italian lender has sparked fears of a possible rekindling of the eurozone debt crisis.
“I think the problems facing Monte dei Paschi are indicative of broader issues related to under-capitalisation not just in the Italian banking industry but throughout the eurozone,” VTB Capital analyst Neil MacKinnon told AFP.
“Policymakers have preferred to ‘kick the can down the road’ during previous eurozone debt and banking crises rather than address key issues of necessary recapitalisation and bank restructuring.”
Back in London, trade was quiet with the market facing a half-day opening today before the Christmas weekend. Frankfurt and Paris will remain open for a full day today.
“In London, you can tell it’s the last full trading day before Christmas,” noted Lee Wild, head of equity strategy at online stockbroker Interactive Investor. Traders were “more interested in ordering last-minute gifts than building new positions”, he said.
Alexandre Baradez, an analyst at IG France, said not too much should be read into yesterday’s softness in stock markets.
“This doesn’t look like a market that changing direction,” he said. “This is more like a slightly negative consolidation.”

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