By Giovanni Legorano and Deborah Ball
ROME -- Italian bank stocks tumbled in Monday trading after
voters rejected constitutional overhauls, stirring fresh turmoil in
the nation's battered financial sector and, people familiar with
the matter say, possibly putting troubled lender Banca Monte dei
Paschi di Siena SpA in line to be nationalized.
A decision on how to proceed may take several days but no later
than week's end, said one person close to the transaction.
Monte dei Paschi closed 4.2% lower in Milan trading, while Banco
Popolare di Milano ended the day 7.9% lower. UniCredit SpA, Italy's
largest bank by assets, fell 3.4%.
Monte dei Paschi di Siena and its advisers have decided to wait
for at least three days before deciding whether to proceed with the
bank's EUR5 billion ($5.30 billion) recapitalization plan, a person
familiar with the matter said Monday, after the "no" vote in
Italy's constitutional referendum threatens to derail the plan.
The person said the advisers and Monte dei Paschi hope to know
who the new Italian prime minister will be before taking any
decision. Prime Minister Matteo Renzi tendered his resignation
Monday evening to Italian President Sergio Mattarella. Mr.
Mattarella accepted it, but asked Mr. Renzi to remain in power to
oversee the passage of Italy's 2017 budget law, which is expected
by week's end.
Any sign that the new prime minister will follow in the
footsteps of the current government and help achieve market
stability will be seen positively by potential investors in the
troubled banks.
The person said the investment banks working on MPS' plan and
the Tuscan bank will decide on the recapitalization by Friday.
On Sunday, Italians rejected a change to Italy's constitution
that was proposed by Mr. Renzi.
According to the people familiar with the matter, a
nationalization of Monte dei Paschi is now more likely, since its
plans for its critical capital increase are unlikely to proceed
after the vote, though a small chance remains that the bank will
find a private-sector solution.
The prospect of Italian banks needing a government rescue was
echoed by European Central Bank Governing Council member Ewald
Nowotny.
"The difference between Italy and other countries is that in
Italy there's essentially been no state aid or takeovers," Mr.
Nowotny said on Monday, speaking in Vienna. "It's not to be
excluded that state aid is necessary," he said.
The bank met with its advisers on Monday to consider its next
moves, the people said. Monte dei Paschi's board is scheduled to
meet Tuesday.
However, a full decision on whether to nationalize the bank
could come only when a new government is formed in Italy, according
to the people familiar with the situation.
Another person familiar with the matter said the Italian
government and the European Commission have been regularly in touch
about Monte dei Paschi's potential nationalization, in case the
bank's recapitalization plan hit a snag.
While it could take two weeks for a new government to choose
cabinet members and secure votes of confidence in the parliament, a
decision on how to proceed Monte dei Paschi could arrive sooner,
perhaps as soon as Mr. Mattarella names a prime
minister-designate.
Investors and executives involved in the transaction hope that
Mr. Mattarella will ask Economy Minister Pier Carlo Padoan, a
well-respected economist who has spearheaded the government's
efforts to clean up Italy's banks, to form a new government.
After a prime minister-designate is named, the advisers and
government officials would begin discussing critical details of an
eventual rescue operation, including the amount the state would
contribute and the size of the losses inflicted on investors,
particularly junior bondholders. Retail investors hold EUR2 billion
in junior bonds.
The prospect of political instability and a change of government
in Italy have created volatility in financial markets for weeks and
Italy's banks have markedly underperformed the rest of the Italian
stock market so far this year.
Investors, policy makers and analysts are concerned that Mr.
Renzi's resignation would bring an abrupt end to the government's
efforts to clean up the banking sector, which is suffering from a
double-whammy of low profitability and huge bad loans.
The bank's stock has lost 85% in the last 12 months and has
priced in the prospect of a 'no' vote in the referendum.
The spillover of any troubles at Monte dei Paschi is unlikely to
ripple directly into other European banking markets, analysts and
bankers say. Since the financial crisis European banks have been
pulling back their cross-border businesses to refocus on their home
markets. Currently less than 2% of European banks' credit exposure
is to Italy, according to analysts at Credit Suisse. The banks with
biggest exposure to Italy are France's BNP Paribas SA and Credit
Agricole SA.
Investors were watching closely Monday morning for any signs
that deposit holders were withdrawing their money. If they see it,
the government may have to move quickly with emergency measures to
stop a run. The government and the bank will also have to announce
a new plan to fix Monte dei Paschi's capital shortfall.
Elsewhere, the vote could complicate plans by UniCredit SpA,
Italy's largest bank, to raise as much as EUR13 billion. The bank
is far healthier than Monte dei Paschi and could wait for calm to
return to the markets before asking shareholders for capital. News
could emerge from a Dec. 13 presentation by UniCredit's top
management in London, where they will unveil a new strategy.
In the longer term, the change of government and the likelihood
of new elections next year could mean a long delay in any
governmental efforts to find sector-wide solutions to the banks'
problems.
The ECB's Mr. Nowotny said the problems in Italy's financial
sector should be put into perspective, noting problems rest with
individual banks, not the banking system as a whole.
"One has to see things with the right scope. These are problems
of individual banks. It's not a problem with the whole banking
system," he said. "And from my view these are problems that can be
solved," he said.
-- Todd Buell in Vienna, Max Colchester in London and Natalia
Drozdiak in Brussels contributed to this article.
Write to Giovanni Legorano at giovanni.legorano@wsj.com and
Deborah Ball at deborah.ball@wsj.com
(END) Dow Jones Newswires
December 05, 2016 14:59 ET (19:59 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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