Contagion fears hit Italian banks

Fears of contagion from the Greek debt crisis have affected trading in Italian bank shares

Trading in shares of Italy’s two biggest banking groups on the Milan stock exchange was halted briefly, amid fears of contagion from the Greek debt crisis spreading throughout the European banking sector.

The value of shares in UniCredit, Italy’s biggest lender, slumped by 8.9%, while Intesa Sanpaolo, the country’s second-largest bank by assets, fell by 7.2%. Both stocks were briefly suspended after breaching limits on intraday swings. Unione Banche Italiane (UBI) and Banca Monte dei Paschi di Siena (BMPS) both fell 5%.

The trading swings followed Moody’s Investors Service decision to place long-term debt and deposit ratings of 16 Italian banks and the long-term issuer ratings of two Italian government-related financial institutions on review for possible downgrade. This decision was subsequent to the rating agency’s announcement on 17 June 2011 that it had placed Italy’s Aa2 bond rating on review for possible downgrade.

Italian banks are also due to be stress-tested next month by European Banking Authority. Intesa and UniCredit are among the five Italian banks to be tested. Markets fear that Intesa would not pass the test.

“These banks are sensitive to even a moderate change in the government’s credit standing and its ability to support the country’s banks,” Moody’s said in a statement. As groups, they also include several prominent asset managers. Eurizon Capital and Fideuram are part of the Intesa Sanpaolo group, while Pioneer Asset Management is part of the UniCredit group. Earlier this year, after a lengthy strategic review, UniCredit confirmed that it would not sell Pioneer, preferring to set the manager on a path of organic growth.

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