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Categorized | Equities

Italian bank stocks fall as Trump election raises fears of knock-on effect

Posted on November 9, 2016

Shares in Italy’s banks plunged more than their European peers in early trading, as concerns grow that market volatility caused by Donald Trump’s US election will have a knock-on effect on the country’s troubled banking sector.

Bank stocks are suffering across the continent, but Italian stocks have been particularly badly hit as several lenders gear up for crucial capital hikes.

Shares in Italy’s most distressed lender Monte dei Paschi di Siena, the worst loser of Europe’s July stress tests which is due to raise €5bn including a capital increase in early December, fell 11 per cent. UniCredit, Italy’s largest bank by assets which is due to unveil plans for a €13bn capital increase in mid December, was down 6 per cent.

At publication time BPM was also down 6.5 per cent, Banco Popolare was down 6.5 per cent, and Bper was down 7.4 per cent. Intesa Sanpaolo, Italy’s largest domestic bank and one of Europe’s most strongly capitalised lenders was down 4.5 per cent.

Senior bankers and bank analysts say jittery investor sentiment could minimise the uptake for Monte Paschi’s recapitalisation which could lead to the the bank’s nationalisation and burden sharing among investors.

A failure of Monte Paschi’s recapitalisation could have a knock on effect on UniCredit’s ability to raise capital and in turn complicate the ability of several other undercapitalised mid-sized Italian banks to boost their capital ratios raising the prospect of their winding down, say senior bankers.

Italy’s banks are widely considered to be undercapitalised, weighed down by €360bn of soured loans, of which €200bn are classed as gross non performing loans.

In Spain, shares in BBVA also fell sharply o amid fears the Spanish bank’s crucial retail business in Mexico could be affected by Donald Trump’s election victory.

The share was down almost 8 per cent in morning trading – significantly worse than the performance of other Spanish lenders such as Caixabank and Banco Santander.

Analysts at Citigroup reacted to the political news out of Washington by downgrading BBVA from “buy” to “sell”, warning that earnings per share at the Madrid-based group could be 17 per cent lower next year and 15 per cent lower in 2018, compared to earlier estimates.

“The outcome of the election is likely to have a number of negative consequences on BBVA Bancomer’s business [in Mexico],” Citigroup said in a research note, pointing to the fall of the Mexcian Peso and lower economic growth as well as increased loan losses due to higher unemployment in the Mexican economy.