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Italy tries to calm investors amid banking turmoil

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Italy tries to calm investors amid banking turmoil
Italy's Prime Minister, Matteo Renzi, called for calm on Thursday amid the country's toxic loans crisis. Photo: Filippo Monteforte/AFP
10:08 CET+01:00
Italy's prime minister said on Thursday that the country's banking system was "much more robust" than investors thought after three days of meltdown of banking shares on the Milan stock exchange.

As some shares recovered in trading Thursday after plunging on fears about Italy's burgeoning toxic loan crisis, Matteo Renzi took to the pages of the Il Sole 24 Ore economic daily to try to reassure skittish investors.

"There's manoeuvring on some banks, full stop. The system, in my opinion, is much more robust than what some investors legitimately fear," Renzi said in an interview published in Thursday's edition.

"We're attentive and worried in the face of the tension on the banking front but that may be a good opportunity for the Italian credit system on condition it acts quickly and well," he said.

Data showing non-performing loans hitting a new record high on top of Italy's already struggling economy after a three-year recession undermined confidence at the start of the week.

Banking stocks plummeted across the board, with the bank considered the world's oldest, Banca Monte dei Paschi di Siena (BMPS), briefly suspending trading on Tuesday.

However, shares in BMPS soared by more than 26 percent on the Milan stock exchange in late morning trade Thursday, after a more than 22-percent plummet
a day earlier.

Ahead of the BMPS rebound, Renzi told the Italian daily that he believed it was "best" to leave it to market forces to find a solution for the Italian banking sector.

Italian Finance Minister Pier Carlo Padoan, also speaking ahead of the markets' opening, described BMPS as "an important bank" with "strong fundamentals and large liquidity".

"I imagine it is in the process of looking for a market solution to strengthen itself," he told the Unomattina TV show.

"The aim of BMPS, but also of other banks in the Italian system, is to bolster themselves... to better resist the turbulence."

On Tuesday Italy's Banking Association said that bad loans, which experts say are unlikely to ever be repaid, hit a record 201 billion euros ($219 billion) in November.

News that the European Central Bank was asking several banks - including BMPS, Banco Popolare and UniCredit - for data on their bad loans fuelled concerns the situation was spiralling out of control.

Renzi told Il Sole 24 Ore that the primary response to the country's bad loan situation was to kickstart the economy, help the private market buy the loans and encourage the consolidation of Italy's banking sector.

Bank consolidation is a hot topic in Italy, which boasts over 700 different banks.

Asked if Italians bank deposits were safe, he responded: "Obviously yes. And besides, to have one of the highest savings to GDP (gross domestic product) ratios is Italy's great strength. We'll never weaken it."

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