Rome upbeat as seven banks turn tide

Stress tests identify Italy as having the biggest capital hole in the euro zone’s banking system

The Italian government yesterday reacted calmly to the results of the European Central Bank's stress tests, identifying Italy as the country with the biggest capital hole in the euro zone's banking system.

The keenly anticipated tests, based on an asset-quality review of balance sheets as of December 31st, 2013, ruled that no fewer than nine Italian banks had failed the exercise. With seven of the nine judged to have already taken corrective measures to deal with their capital shortfalls, two major Italian banks, Monte dei Paschi di Siena (MPS) and Carige, have residual shortfalls of €2.111 billion and €814 million respectively.


"Today's results are reassuring and for us they are not unexpected. The Italian banking system has shown its solidity. Overall we're not surprised by the results, while the system is solid and capable of financing the economy," said Fabio Panetta, deputy governor of Banca d'Italia, Italy's central bank."

His upbeat assessment was echoed by Italian finance minister Pier Carlo Padoan, who argued that the markets had "already" reacted positively to the well-known problems, especially those of MPS, even before the results of the stress tests were released yesterday.


The association of Italian Banks, ABI, said "overall" the results represented positive news for Italy.

“On the basis of the rigorous European tests carried out, it would appear that the Italian banking system overall is solid, thanks also to the huge capital increases effected . . . and it is now ready to underwrite the [economic] recovery with loans to businesses and families,” it said.

Despite all the official reassurances, however, analysts will be watching warily the country that, three years ago, nearly single-handedly sank the euro under media tycoon Silvio Berlusconi’s stewardship.

Wishful thinking

In a country officially in recession, (GDP growth this year is -0.17 per cent) and with unemployment at 12.9 per cent, the notion that the Italian banking system is “ready” to offer loans to businesses and families will strike many as wishful thinking.

One of the complaints most regularly voiced by commerce lobby Confcommercio concerns the difficulties encountered by small businesses in trying to obtain loans, often necessary for survival.

Outside analysts too will doubtless be watching MPS closely. The world's oldest bank, founded in 1472, made international headlines two years ago when it received a €3.9 billion-euro government "dig- out" after registering combined losses of €6.685 billion in 2011 and 2012. Those losses had been generated largely by the controversial €9 billion purchase of rival bank Antonveneta in 2008, which left MPS saddled with huge debts on the eve of a global recession.

At the time, Italian banking insiders argued MPS’s problems owed more to political interference than to chronic fault lines in the Italian banking system. Here’s hoping they were, and still are, correct.