Published: Wed, November 30, 2016
Economy | By Melissa Porter

Italian banks face sluggish response on cash calls as capital crisis looms

Opinion polls are making increasingly grim reading for Italian Prime Minister Matteo Renzi ahead of the referendum on constitutional reform on which he has staked his political future. USA banks were also in the firing line, with the S&P financial sector dropping 1.3%.

ITALY is set to deal a hammer blow to its government as the latest polls revealed voters will punish Matteo Renzi's administration in the upcoming referendum.

Italian newspapers on Tuesday speculated that Renzi may resign even if he wins the vote.

Renzi will also emerge highly bolstered on the European stage.

They are now estimated to need as much money to cut impaired loans totalling 17 billion euros before looking for a potential buyer or be allowed to merge - a move they are considering. "Italy can react to anything, but this really would be a step back". But the bank fears in Italy were the major negative.

The party's agenda includes a referendum on Italy's eurozone membership, a renegotiation of Italy's gargantuan public debt, an end to sanctions against Russian Federation, and a rejection of free trade deals with the USA and Canada.

Investors are increasingly anxious over the upcoming referendum in Italy that could potentially lead to the fall of the Italian government and raise possible concerns over the recapitalization of the banking system.

As well as Monte Dei Paschi, these include lenders Popolare di Vicenza, Veneto Banca and Carige, and four small banks rescued previous year: Banca Etruria, CariChieti, Banca delle Marche, and CariFerrara.

Analysts say a fall in futures prices and a corresponding rise in open interest is tell-tale sign of this trend. Before the blackout started on November 18, the final battery of surveys all showed the "No" camp well ahead, but with up to 25 percent of voters still undecided.

President Jean-Claude Juncker said in an interview that he agreed with the Italian Prime Minister's reforms. It is not to say that "the people" shouldn't decide about such issues, rather it reflects the difficulties of educating the (largely disinterested) general public sufficiently about the issue that they can make an informed choice. It has lost nearly two-thirds of its value over the past year.

But, if Mr Renzi loses on Sunday, a dramatic sell-off in Italian debt - or so-called bonds - could be triggered, which could send costs for Rome spiralling out of control.

Renzi said earlier this month that he would no longer bow to "diktats" from Brussels over fiscal restraints he regards as counterproductive at a time when most of the eurozone is struggling.

We have already seen markets roiled this year the Brexit vote in Britain, the election of Donald Trump and the battle (now settled) for the conservative candidate for the French Presidency. Although he supported Hillary Clinton during the election, Renzi says the topic didn't come up.

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