Italy Votes “No” Making Bank Referendum more Difficult

With Sunday’s embarrassing vote of “No” to Italian Prime Minister Matteo Renzi and his needed reforms to the corporate banks in Italy and the banking system, reform will be even harder. Italy is likely headed to early polls next year.

Renzi resigned after failing to win a mandate to try and curb powers held by the upper legislative house. This will throw a wrench into any plans by Banca Monte dei Paschi di Siena to conduct a €5 billion increase to capital. This was backed by the now outgoing premier. The sense of concern surrounding the country’s banks is growing by investors.

The referendum outcome in Italy is likely to increase concerns about the country’s banking sector. It will also increase the likelihood of downgrades to the nation’s corporate banking institutions. Ratings agencies are not expected to act quickly at this time.

Banks in Italy are strangled with high levels of Debt

The country’s banks are struggling with an inordinate level of bad debt which is affecting 14 of its largest banks. This debt sits at €286 billion in bad loans, securities and off-balance sheet items. Earlier this year, asset managers, insurers and banks agreed to set up a euro fund to help support the weaker Italian banks and lenders. But with this vote, investors might now pull out of that deal.

Investors are hinting, strongly, whey are now going to pull back as the situation has become too volatile in both Italy and the European Union. This will make it very hard for at risk banks, like Monte Paschi, and other regional investment banks to raise needed capital. This is also going to put the country at odds, not only with the European Union but the European Central Bank.