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Italian Bank Shares Plunge, Sparking Ban on Short-Selling

from The Telegraph:

Investors are nervous about how the sector will cope with lower interest rates and a €200bn pile of loans.

On Monday, Italy’s banking index fell 5.7pc, with Monte dei Paschi di Siena the biggest loser with a 14.8pc drop.

The slump, which also hurt the bank’s riskier junior debt , prompted Italian market regulator Consob to introduce a temporary ban on short-selling.
Monte dei Paschi chief executive Fabrizio Viola said the bank was financially sound and the share drop unwarranted.

Italy’s oldest bank, the only Italian lender to be bailed out during the financial crisis, is saddled with problematic loans equal to more than a fifth of its total client loans.

JP Morgan said Italian banks should be avoided because low interest rates are expected to put pressure on revenues more than in other countries and credit problems limit a recovery in provisions.

Traders have suggested exiting investments that have been particularly favoured, such as Popolare di Milano and Intesa, as the stocks have reached key support levels.

“I think upside on cooperative banks this year is much more limited,” a London-based equity sales person told Reuters.
Government reform of Italy’s top 10 cooperative banks forces them to turn into joint-stock companies by the end of the year, making them potential takeover targets.

Talks among the main players – UBI, Popolare di Milano and Banco Popolare – about defensive mergers are under way.

Analysts say stimulus measures by the European Central Bank have helped an economic recovery but have the side-effect of putting bank margins under pressure. They say more turbulence is expected in their stocks as markets are being rattled by woes over China and oil prices.

But some fund managers maintain their positive bets on a sector in which valuations are, in some cases, below rivals elsewhere in Europe.

“I would look at calls to exit Italian banks with a pinch of salt,” Gilles Guibout, portfolio manager at AXA IM, said.

“Consolidation has not yet happened but it will and then allow market repair and bring in efficiencies.”

Read More @ TheTelegraph.co.uk

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