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The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Draghi: Eurozone will decline without vital productivity growth

It’s productivity, stupid. European Central Bank president Mario Draghi has become the latest major policymaker to warn of the long-term economic damage posed by chronically low productivity growth, as he urged eurozone governments to take action to lift growth and stoke innovation. Speaking in Madrid on Wednesday, Mr Draghi noted that productivity rises in the […]

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Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Categorized | Currencies, Economy

Jitters strike Italian bank stocks ahead of referendum

Posted on November 28, 2016

Stop me if you think you’ve heard this one before.

Italian bank stocks are being hit hard this morning, leading declines across European financials ahead of a key referendum on December 4 that could have major consequences for plans to revive Italy’s troubled financial system.

UniCredit – Italy’s most systemically important bank – is the biggest loser, falling 4 per cent, while Banco Popolare, Banca Popolare di Milano and Banco Emilia are down more than 3 per cent in early morning trading.

Italy’s main banking index has now slumped to a two-month low with all the stocks in the Euro Stoxx banks index in the red on Monday.

Investors are settling stocks as Italians prepare to go to the polls in six days’ time to decide on a reform to the country’s constitution in a vote that has become referendum on the leadership of Rome’s centre-left prime minister Matteo Renzi.

Should the reform be rejected – as tight polling indicates – Mr Renzi has vowed to step down in a move that could throw plans to clean up Italy’s oldest bank Monte Dei Paschi into turmoil, and spark contagion fears in the eurozone’s third largest economy (read more from the FT’s Rachel Sanderson here).

Italy has eight banks known to be in various stages of distress. As well as Monte dei Paschi, they include mid-sized lenders Popolare di Vicenza, Veneto Banca and Carige, and four small banks rescued last year: Banca Etruria, CariChieti, Banca delle Marche, and CariFerrara.

Senior bankers have told the FT they fear Mr Renzi’s resignation would deter private investors from pumping fresh funds to recapitalise lenders, leading to fears they will need to be put under a new EU “resolution” mechanism that would force losses on creditors.

A ‘No’ vote “would likely usher in a period of increased political uncertainty in Italy and would represent a major set-back for economic reform efforts”, notes Elsa Lignos at RBC Capital Markets

“Italy continues to be a long-term risk for the euro area, but that is a two-year rather than a two-month trade”, said Ms Lignos.

Chart courtesy of Bloomberg