Italy

Concerns about the €40bn of non-performing loans on the balance sheet of Banca Monte dei Paschi di Siena reduced the market capitalisation of Italy’s third-largest lender by assets to just €2.2bn as its shares hit a record low, the Financial Times reported. Led by Monte dei Paschi, shares in Italian banks fell sharply amid predictions of a tough year for the sector as an estimated €330bn in NPLs and low interest rates weigh on profitability.

Four Italian banks rescued last month from collapse will be sold by late spring, the chairman of the lenders said today, as Rome comes under pressure from Brussels to find buyers quickly, Reuters reported. "There is an obligation to sell (the banks) and significant pressure from the EU to do so very fast," Roberto Nicastro said.

Matteo Renzi, Italy’s centre-left prime minister, is facing a political backlash over the €3.6bn rescue of four small banks last month, after thousands of retail investors who lost money in the deal have mounted increasingly vocal protests, the Financial Times reported. The public opposition has led Italian officials to consider the rare step of paying a “social subsidy” to the most financially vulnerable junior bondholders who took a hit in the agreement to save Banca Etruria, Banca Marche, CariFerrara and CariChieti.

The Italian government will pocket over €4 billion ($4.4 billion) in proceeds from a tax amnesty it launched as part of a broad crack down on Italian money stashed abroad, The Wall Street Journal reported. The additional money will be a boon for the government, as it seeks to meet its budget targets amid a new slowdown in growth in the eurozone’s third-largest economy. However, doubts remain as to whether the amnesty will mark a real change in a country where tax evasion remains a scourge.

Banks in Italy fared better during the financial crisis than many of their peers, sparing Italian taxpayers the bail-outs their counterparts in other countries had to shoulder. But although they stuck to their cautious business models and avoided fuelling a big housing boom and bust, Italy’s protracted recession has enfeebled them, The Economist reported. It has caused bad loans to soar, which in turn has prevented them from supporting a still weak recovery with new lending.

Italy’s banks will shoulder most of the burden of rescuing four of the nation’s lenders, incurring €1.8 billion in extra costs for the year under a bailout plan that spares senior bondholders and large depositors, the Irish Times reported. The rescue will add to pressure on an industry hobbled by weak economic growth and narrow lending margins. Profitability remains below the level before the 2008 financial crisis. “Italy’s bank resolution is no free lunch,” Royal Bank of Scotland analyst Alberto Gallo said.

Italy has used a controversial state guarantee to rush through the rescue of four banks before EU “bail-in” rules come into force next year in an effort to deal with tens of billions of bad loans hampering the country’s economic recovery, the Financial Times reported. The newly created Italian bank resolution fund will raise €3.6bn to restructure four small lenders — Banca Marche, CariFerrari, CariChieti and Banca Etruria.

Italy sold two-year debt at a negative yield for the first time on Tuesday, as concerns over the health of the global economy and expectations of further central bank stimulus reignited a rally in bond markets, the Financial Times reported. The sale gains Italy entry to a select group of countries including Germany, France and Switzerland whose borrowing rates have turned negative as investors prove willing to buy their debt at any price. “This is an Alice in Wonderland situation,” said Andrew Milligan, head of global strategy at Standard Life Investments.

Poor access to credit has been — and remains — one of the biggest clouds hanging over the tepid recovery in Italy’s economy, which has just started to grow this year after three years of stagnation and recession, the Financial Times reported. Small and medium-sized companies, which form the backbone of the Italian economy, were hit the hardest as banks retrenched in the wake of the economic and financial crisis that left them saddled with high volumes of non-performing loans (NPLs).

The Bank of Italy will keep mid-sized lender Banca Marche in special administration until mid-December - two months more than previously planned, a source close to the matter said on Tuesday, Reuters reported. The country's central bank put Banca Marche in special administration in August 2013 after an audit led to massive writedowns on its loan portfolio and eroded its capital base. Its period in special administration has already been extended from 2014 until this autumn.