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Stress tests fail to soothe banking nerves

Monday, August 01, 2016 - 01:56

With the ink barely dry on its bailout plan, Italian bank Monte dei Paschi di Siena faces a Herculean task convincing investors to back a third recapitalisation in as many years and avert a banking crisis that would send shockwaves across Europe. David Pollard reports.

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In a 544-year history, for some investors it's only the last three that really matter. Those seeing two failed recapitalisations. And now a third rescue bid - announced last Friday - facing a huge task to bring investors on board. SOUNDBITE (English) CHIEF ECONOMIST, WORLD FIRST, JEREMY COOK, SAYING: "How many times have we spoken about trying to save a bank that is so littered with debt, so littered with non-performing loans, that maybe the sensible thing would be to let it go?" Monte dei Paschi's burned through 8 billion euros in those recent years. Raising another five billion under its latest plan could be a tall order. Italy's banks have 360 billion euros of bad loans - Europe's perhaps three times that, in total. So, for some analysts, the relatively healthy outlook of the latest EU banking stress tests was a surprise. Over not just Italy. (SOUNDBITE) (German) BANKING EXPERT AND BAVARIAN FINANCIAL CENTER PRESIDENT, WOLFGANG GERKE, SAYING: "German banks lack efficiency, and that means that they'll only convince if they bring in revenue. Commerzbank is not doing well enough and Deutsche Bank is very far off." And - critical for some analysts - is what's not in the report. Brexit one risk omitted. Negative interest rates another. SOUNDBITE (English) CHIEF ECONOMIST, WORLD FIRST, JEREMY COOK, SAYING: "If banks are sat there going ... 'we don't want to lend, and if we do lend then we're worried about whether we'll actually get our money back or not, and actually the investment side of things is being hurt as a result of negative interest rates', then we've learned that it's not a particularly good time to be a bank at the moment." And certainly not in terms of their share price. After initial gains following the stress tests, those turning red across the board. Italy's Unicredit suspending its shares a second time after a five per cent drop. The one exception: a bank that's already lost 80 per cent of its share value this year. Montei dei Paschi as much as four per cent UP - as news of the latest rescue bid took hold.

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Stress tests fail to soothe banking nerves

Monday, August 01, 2016 - 01:56