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Italy bank fund may not be a 'cure-all'

Tuesday, April 12, 2016 - 01:43

News of a fund to shore up Italy's weaker banks continues to push banking stocks higher, even as analysts question the size of it. At 5 billion euros, one says it's little more than a 'figleaf' when compared to the 360 billion euros of bad loans in the sector - while others raise questions over who will foot the bill. David Pollard reports.

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Italy's prime minister, Matteo Renzi, gets a VIP welcome on a visit to boost ties with Iran. Back home, there's been no red carpet treatment for Italy's banks this year - with over 360 billion euros of bad loans their share values are down around a third amid concerns over the sector. A new emergency fund will, it's hoped, shore up confidence. Something in short supply just now, say analysts. (SOUNDBITE) (English) PANMURE GORDON CHIEF ECONOMIST, SIMON FRENCH, SAYING: "Non-performing loans are about 18% of the banking loan book, and the problem faced by Italian banks is that an awful lot of that debt sits with the Italian industrial sector ... The Italian economy has not really grown for the last decade and therefore the ability to turn round the underlying business holding the debt is quite constrained." Five billion euros are expected to be raised for the emergency pot. Intesa Sanpaolo and Unicredit could, it's suggested, provide the bulk, along with insurers and asset managers. That's far from settled yet - and the amount, says one analyst, is no more than a 'fig leaf'. When there are bigger questions over banking confidence - and overall euro zone monetary policy. (SOUNDBITE) (English) BGC PARTNERS MARKET STRATEGIST, MIKE INGRAM, SAYING: "You cannot rely on monetary stimulus alone in all its various weird and wonderful forms that we're starting to see, in order to reflate the economy. You need to look at the fiscal side of the equation - and you also need to look at, I feel, balance sheet restructuring, and a lot of this has actually been put on the back burner by virtue of the very same low interest rates that we've had now for many, many years." Renzi says further measures to speedy up bankruptcy proceedings and loan recovery will follow within days. Strengthening Italy's banks has been one of his stated priorities - this new fund at best seen as only a small step forward.