Monte dei Paschi woes in focus as stock markets ease

London/ AFP

European equities drifted mostly lower on Thursday in quiet pre-holiday trade, with investors awaiting news on the fate of crippled bank Monte dei Paschi di Siena (BMPS). Wall Street also eased at the opening, slipping further away from the elusive 20,000 target on the Dow index. “The long awaited 20,000 benchmark on the Dow isn’t breached yet and this is likely to keep some traders excited,” said Hussein Sayed at FXTM. BMPS, the world’s oldest lender, edged closer to a state rescue as its last-ditch plan to raise five billion euros ($5.2 billion) of new capital risked falling short.
“Monte dei Paschi remains the major highlight in Europe,” noted LCG analyst Ipek Ozkardeskaya. BMPS lies at the epicentre of an Italian banking crisis which has cost the troubled firm over 80 percent of its market capitalisation over the past year.
Last week it launched an urgent attempt to find, through private investors, the funds needed to shore up its balance sheet. The bank’s stock rose by 1.7 percent on Wednesday amid hopes the crisis will end with some kind of viable solution, including a possible rescue by the government. “A state bailout would at least allow the lender to continue as a going concern,” said David Cheetham at XTB.

BANKS ‘WON’T COLLAPSE’
Such moderate optimism also underpinned other banking stocks. “Financials are happy to hear that the sector won’t be left to collapse under the weight of BMPS,” said Accendo Markets analyst Michael van Dulken.
Italian media reported that a state bailout could take up to three months, while the lender has admitted that it only has four months’ worth of liquidity left. “Two or three months is very much at odds with the year-end deadline that had been worked to under the failed private solution,” van Dulken told AFP. Italian Prime Minister Paolo Gentiloni said the government was prepared to come to its aid if the private rescue failed. If it came to that, it would use a move known as precautionary recapitalisation, meaning shareholders and holders of junior bonds, a risky class of debt, must contribute to saving the bank.

‘KICK THE CAN’
The plight of the stricken Italian lender has sparked fears of a possible rekindling of the eurozone debt crisis. “I think the problems facing Monte dei Paschi are indicative of broader issues related to under-capitalisation not just in the Italian banking industry but throughout the eurozone,” VTB Capital analyst Neil MacKinnon said.
“Policymakers have preferred to ‘kick the can down the road’ during previous eurozone debt and banking crises rather than address key issues of necessary recapitalisation and bank restructuring.”
On Wednesday, Italian parliament approved Gentiloni’s plan to set aside 20 billion euros to help Italy’s ailing banking sector which is buckling under bad loans estimated at a combined 360 billion euros, or around a third of the eurozone’s total.
Back in London, trade was quiet with the market facing a half-day opening on Friday before the Christmas weekend. Frankfurt and Paris will remain open for a full day on Friday. “In London, you can tell it’s the last full trading day before Christmas,” noted Lee Wild, head of equity strategy at online stockbroker Interactive Investor.
“Traders still at their screens are more interested in ordering last-minute gifts than building new positions.”