Shares rise in Italian banks amid hopes for investor help

AP News
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Posted: Dec 12, 2016 7:10 AM
Shares rise in Italian banks amid hopes for investor help

MILAN (AP) — Shares are up in Italy's banks amid hopes that a new government will provide the political stability needed for them to raise billions in cash from investors.

The most troubled lender, Monte dei Paschi di Siena, saw its stock price rise over 7 percent on Monday after it said over the weekend that it is moving ahead with a plan to raise 5 billion euros ($5.2 billion) from private investors by the end of the year.

There were concerns when the government collapsed last week that it would become difficult to find that money as long as there was uncertainty over who would lead the next administration. If the bank can't find the money, it could need a state bailout.

The political uncertainty has eased somewhat after outgoing foreign minister, Paolo Gentiloni, was this weekend asked to become premier and form a government. Analysts expect him to confirm the key posts, including that of finance minister, to provide continuity in the handling of the banking problems.

A bailout for Monte dei Paschi could be politically explosive because European Union rules could mean that bank bondholders, many of them small-time investors, must take losses as a condition of pouring in taxpayer money.

Losses for small savers could fuel discontent and support for the populist opposition 5-Star Movement, which wants a non-binding referendum on Italy leaving the shared euro currency.

Yet letting banks limp along with weak finances also has its costs. Italy's banks are struggling under the burden of 360 billion euros in loans that aren't being repaid due to Italy's slow economy. Bank woes then hold back the economy even more, because that is where most businesses get the credit they need to operate.

In another positive sign for the sector on Monday, Italy's largest bank, UniCredit, said it had agreed to sell one of its units for 3.8 billion euros ($4 billion) to bolster its cash buffers.

UniCredit, is due to announce a new business plan Tuesday, said it will sell asset management business Pioneer Investments to investment fund Amundi, based in Paris.

The bank said the deal will generate net capital of 2.2 billion euros.

Shares in UniCredit were up 1.4 percent while the wider Milan stock index was 1.2 percent higher.