MILAN (Reuters) - Hopes the Italian government and top lenders will soon thrash out a plan for a state-backed fund to buy bad loans and plug capital shortfalls lifted banking shares on Monday, even though analysts warned the scheme would be no panacea.
Economy Minister Pier Carlo Padoan has called a meeting in Rome with executives from Italy’s leading financial institutions at 1600 GMT on Monday and an announcement of an agreement could follow shortly afterwards.
“This is the right week,” Prime Minister Matteo Renzi told reporters when asked about the scheme’s timing.
Italy’s government is anxious to assuage concerns about its banking system, which fared badly in 2014 financial stress tests carried out by the European Central Bank and is groaning under the weight of 360 billion euros (288 billion pounds) in bad loans.
The aim is for the fund to mop up unsold shares in upcoming stock issues at distressed lenders and help buy non-performing loans from banks, five sources said on Sunday.
One of the sources said the fund would have a maximum equity endowment of 5 billion euros, on top of a debt component.
State lender Cassa Depositi e Prestiti would contribute up to 300 million euros, the source said, with the bulk of the money expected to come mostly from top banks Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI), insurers and asset managers.
Rome, struggling under a public debt equivalent to 132 percent of GDP, wants the fund to be majority-owned by private investors to comply with European rules limiting state aid.
Shares in Italian banks - which have lost around a third of their value this year amid concerns over the solidity of the system - rose for a second straight session on Monday as investors bet an announcement may come in a matter of hours.
Monte dei Paschi di Siena (BMPS.MI), which has the highest proportion of bad loans, soared 12 percent. Banco Popolare BAPO.MI rose 9.5 percent while UniCredit was up 5 percent.
Weeks of talks over setting up the fund took on added urgency due to a 1.76-billion euro cash call at Banca Popolare di Vicenza, to be completed by May 10.
UniCredit is sole guarantor for the capital increase and its own capital ratios could suffer if it was left with a lot of unsold shares. Two other rights issues totalling 2 billion euros loom — one at Veneto Banca and one at Banco Popolare BAPO.MI.
“We struggle to see there being demand for the three Italian banks looking to raise capital,” Berenberg said in a note.
“We worry that a bail-in of an Italian bank may cause a chain reaction with the ripple effects felt across the European banking system.”
Analysts said the country’s top banks appeared to be willing to put money in the fund out of fear a bank collapse could trigger a run on deposits and drag down the whole industry.
But they said the scheme was a backstop, not a cure-all for Italy’s banking sector, which has long suffered from low profitability, weak governance and too many branches.
“In the long term Italian banks need to consolidate, restructure and change their business models,” said Luigi Tramontana at broker Banca Akros.
additional reporting by Stefano Bernabei