BusinessBanking & Finance

Italian banks plunge on Monti resignation plan

PUBLISHED : Monday, 10 December, 2012, 6:23pm
UPDATED : Monday, 10 December, 2012, 6:23pm

Italian banks plunged on Monday, leading declines in the European Stoxx 600 Banks Index, after an announcement that Prime Minister Mario Monti will step down threatened to open a new front in Europe’s debt crisis.

UniCredit, Italy’s biggest bank, declined 22 cents, or 6 per cent, to 3.43 euros at 6.36pm HK time in Milan trading, the biggest decline since September. Intesa Sanpaolo, the second-largest lender, fell 6.4 per cent to 1.2 euros and Monte dei Paschi di Siena declined 7.6 per cent to 19 cents.

“Monti’s decision to resign increases uncertainty and should be short-term market negative,” Giovanni Zanni, director of European economics at Credit Suisse Securities in London, wrote in an e-mailed report today. “Clearly, though, volatility is of the essence until the elections. The situation is fluid and should remain so for some time.”

Monti will try to corral his coalition, which includes former Prime Minister Silvio Berlusconi’s People of Liberty Party, for a vote to pass the budget before handing in his “irrevocable resignation,” President Giorgio Napolitano’s office said on December 8. Berlusconi’s plans to run next year’s general election with an anti-austerity message is also rattling investors.

Italian 10-year government bonds declined, pushing the yield up 29 basis points to 4.8 per cent, the highest level in more than two weeks. The spread over German 10-year yields widened 30 basis points to 353 points.

Banco Popolare, Italy’s fourth largest bank, fell 6.3 per cent to 1.07 euros and Unione di Banche Italiane Scpa, the No 5 lender in the country, fell 5.7 per cent to 2.90 euros.

The country’s co-operative banks such as Banco Popolare are most affected by widening spreads because of “their large portfolio of Italian government bonds and the increasing difficulties on the funding,” Milan-based broker Fidentiis Equities wrote in an e-mailed report to clients.

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