Italy’s government is considering injecting capital into some lenders battered by a fresh selloff in the wake of the U.K.’s decision to leave the European Union, according to people with knowledge of the talks.
The government is weighing measures that may add as much as 40 billion euros (USD44 billion), said one person, asking not to be identified because the talks are private. The government may support lenders by providing capital or pledging guarantees, said the person. The amount is still under discussion and no final decision has been taken, according to the people.
Italy’s government is seeking to stabilize a financial system, hurt by 360 billion euros of non-performing loans, sluggish economic growth and record-low interest rates after an earlier attempt to set up a bad bank with public funds met with resistance from the EU. The country was among the hardest hit by Friday’s market rout that wiped $2.5 trillion from global equity values, with some of Italy’s largest banks dropping more than 20 percent.
“The Italian banking sector’s worries are far from resolved,” said Jan von Gerich, a strategist at Nordea Bank AB in Helsinki. “The outlook for Italian banks was clouded even before Brexit and the new worries Brexit has created for the banking sector in general further darken the outlook.”
Government and Bank of Italy representatives met over the weekend to discuss proposals, while also holding informal meetings with the European Commission, the people said. Italian authorities are monitoring markets and a decision on possible measures to support banks will be taken in the next few days, they said.
Governments are able to provide funds directly to banks under exceptional circumstances of systemic stress such as sparked by Brexit, without breaching state-aid rules. Sonia Sirletti, Bloomberg
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