Shares of Italian Banks Slide as ECB Calls for Bad-Loans Protection
16 January 2019 - 6:56AM
Dow Jones News
By Patricia Kowsmann
FRANKFURT -- Shares of Italian banks fell sharply Tuesday on a
newspaper report that the European Central Bank wants them to clean
up their bad loans more effectively.
Shares of Unione di Banche Italiane SpA closed down 5%, having
earlier fallen more than 10%, UniCredit SpA shares dropped 3.2% and
Intesa Sanpaolo SpA lost 1.3% after Italian newspaper Il Sole 24
Ore reported the ECB had told its supervised Italian lenders they
must fully cover their exposure to all existing and future
nonperforming loans by 2026.
The shares recovered some of their steeper earlier losses when
UBI and Intesa said in separate statements that they don't expect a
significant impact from the ECB recommendations they have received.
UniCredit didn't immediately respond to a request for comment.
A person familiar with the matter said the ECB hasn't set the
same deadline for all banks, and guidance is being given on a
case-by-case basis, although expectations are the same for similar
banks. The ECB's goal is to have lenders cover all of their
nonperforming loans in the medium term, the person added.
The selloff highlights how skittish investors are about any ECB
pressure -- real or perceived -- on the weakest European banks.
Some EUR688 billion ($789.27 billion) in nonperforming loans remain
the biggest challenge European banks face following the continent's
crisis in 2010 that triggered a flood of defaults by companies and
individuals. Lenders have resisted cleaning up their portfolios in
many cases because that would force them to take losses and raise
capital.
Italy, in particular, has complained that a heavy-handed
approach would hurt banks' ability to lend. On Tuesday, Italian
Deputy Prime Minister Matteo Salvini said the ECB was attacking the
country's financial system.
Since Mr. Salvini took office in June last year, pressure on
Italian banks has risen sharply after the populist government
unveiled a big-spending budget that defied European Union rules and
rattled markets. Italian banks are a key buyer of Italian
government bonds.
Under the ECB guidelines, banks with NPLs must either sell them,
which many are already doing, or set aside capital to cover any
future losses.
Filippo Alloatti, a credit analyst specializing in European
financial firms at London-based Hermes Investment Management, has
estimated it would cost Italian banks EUR60 billion in new
provisions to cover all its NPLs by 2026, although some of that
coverage is already being taken care of under current plans.
For Spain and Portugal, where banks also have large portfolios
of bad loans, the figure would be EUR35 billion and EUR10 billion,
respectively, Mr. Alloatti added.
Joe Wallace in London contributed to this article.
Write to Patricia Kowsmann at patricia.kowsmann@wsj.com
(END) Dow Jones Newswires
January 15, 2019 14:41 ET (19:41 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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