Italy

The price of a bond issued by Monte dei Paschi di Siena, Italy’s third-largest lender, plunged more than a tenth on Tuesday in the latest sign of growing investor alarm over bad debts within the country’s financial institutions, the Financial Times reported. Anxiety has spread from stock markets, where shares in the world’s oldest bank have fallen by more than a quarter this week to reach a record low, after the European Central Bank demanded it shed another €10bn in bad loans.

Britain’s vote to leave the EU has produced dire predictions for the U.K. economy. The damage to the rest of Europe could be more immediate and potentially more serious. Nowhere is the risk concentrated more heavily than in the Italian banking sector, The Wall Street Journal reported. In Italy, 17% of banks’ loans are sour. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.

An Italian bank bailout fund has taken control of a second lender after Germany rejected a plea for a more sweeping state-funded recapitalisation of the country’s banking system, the Financial Times reported. Angela Merkel, the German chancellor, turned down the plea from Matteo Renzi, Italy’s prime minister, at an EU summit in Brussels on Wednesday evening, prompting a sharp fall on Thursday in Italian bank shares, which have now dropped 54 per cent this year.

Italy is eyeing a multibillion-euro rescue of its ailing banks, using the market turbulence triggered by the UK’s Brexit vote as an excuse to sidestep strict rules against state support for lenders, the Financial Times reported. Following a further hit on Italian bank shares in the wake of the UK referendum, Matteo Renzi, Italian premier, has resurrected ideas to shore up a sector that is fast becoming one the eurozone’s weakest links, say bankers and officials.

Brussels has granted Italy “unprecedented” flexibility in meeting EU debt reduction targets, using its political leeway to the full as it cautiously polices the eurozone’s fiscal rule book, the Financial Times reported. Italy has emerged as a big winner from the European Commission’s latest review of national budget policies, which is set to pull back from — or postpone — painful corrective measures it had the power to impose.

A government-orchestrated, privately backed €4.25bn fund — rushed into place last month as investors fretted about Italy’s vast pile of bad loans run up during a long recession — has not proved the silver bullet Italian bankers and officials had hoped, the Financial Times reported. Italian bank shares plunged again this week, alongside a wider fall in banking stocks, taking their losses since the start of the year to more than 30 per cent.

Italian banks' subordinated debt took a hit on Tuesday as the after-effects of the failed Vicenza IPO started to filter through to the debt markets. A 200m 9.5% 2025 Tier 2 bullet from Banca Popolare di Vicenza has lost over three points since the end of last week and was quoted at a 92.56 cash price on Tuesday, according to Eikon. A 200m 9.5% Tier 2 2025 deal callable in 2020 from Veneto Banca has not fared much better, dropping from 92.8 at the open to 90.1 by lunchtime.

The Bank of Italy has calculated that a draft law allowing creditors to recover bad debts without involving the court system could drastically reduce the length of time the process requires, a source familiar with the matter said. Italian banks are groaning under 360 billion euros ($407.5 billion) in bad loans, which take years to shift partly due to a slow and inefficient justice system. Prime Minister Matteo Renzi's cabinet is due to meet on Friday to discuss a draft law aimed at making credit recovery more efficient, according to a government source.

UBI Banca is preparing to issue the year's first Tier 2 bond in euros from an Italian bank, a crucial test of appetite for subordinated debt from one of the country's smaller lenders as the government tries clean up its troubled banking sector. Giorgio Erasmi, head of funding, and Laura Ferraris, head of investor relations, will meet investors in Milan, London and Paris from Thursday 21 April to Tuesday 26 April.

An Italian decree to speed up recovery of bad loans and compensate people who lost their savings in a bank rescue will not be discussed at a cabinet meeting on Wednesday, two sources said on Tuesday, Reuters reported. Wednesday's meeting had been expected to yield an emergency decree containing both measures, but a government source and a banking source said it would not be on the agenda. The cabinet will probably discuss and approve the decree next week, one of the sources said.