Will Italian Banking Crisis create ItaLeave?


July 7, AtoZForex Currently, the Italian banking sector is facing many problems, and this can be the reason for ‘Italeave’, as it reported by strategist Brian Jacobsen. The EU officials began to worry that  Italian Banking Crisis can emerge as an obstacle to the EU six-year effort to shore up the EU’s common currency.

Italian banks are experiencing problems

Just recently, the European Central Bank (ECB) has told Monte dei Paschi di Siena that the latter needs to shed another €10 billion in bad loans. And that is not all, as many other banks in Italy are also having hard times. As Monte dei Paschi di Siena shares dropped by 13 percent this Monday to its lowest point, also UniCredit went down by 3.8 percent also reaching its lowest position. The FTSE Italia All-Share banks dropped by 3.7 percent with its overall value loss of 56 percent recorded this year. All the above mentioned accumulates to over €360 billion sector loss in non-performing loans.

Will we witness the “Italeave”?

As a big number of Italian banks are in turmoil currently, Italy has all the chances to become the next country to exit the EU. The situation in the country can be a possible cause for the losses of the Italian retail investors as many of them hold banks bonds. Brian Jacobsen, Chief Portfolio Strategist at Wells Fargo Funds Management, believes that:

“The bigger issue here the fact that you have so many pensioners and depositors who have purchased some of the slightly higher-yielding securities issued by Italian banks, who by EU rules would effectively need to be wiped out before there could be a recapitalization.”

Will Italian Banking Crisis create ItaLeave?

What is more, as it was reported by people familiar with the matter, Italy may be willing to pump billion of euros into its banks to resist the Financial Crisis 2017. Brian Jacobsen believes that the situation became a major political issue in Italy. He has also commented:

“People could be talking about Italeave instead of Brexit if they don’t actually come to an agreement about how to capitalize these in a way in which Matteo Renzi is laying out and which is also palatable to the Germans.”

The 10-year yield dropped to its lowest level since 1953. Paul Miller, Managing Director at FBR told reporters:

“If the 10-year continues to stay down, you will see earnings revisions as it is very difficult to make money in a low-, flat-rate yield-curve environment.”

Paul Miller believes that for the moment, U.S. Treasuries became a big safety trade as investors escape from Europe.

See also: Banca Monte dei Paschi di Siena Short Selling is Banned in Italy

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