ROME: Italian bank stocks tumbled in Monday trading after voters rejected constitutional overhauls, stirring fresh turmoil in the nation’s battered financial sector and, people familiar with the matter say, possibly putting troubled lender Banca Monte dei Paschi di Siena SpA in line to be nationalized. A decision on how to proceed may take several days but no later than week’s end, said one person close to the transaction. Monte dei Paschi closed 4.2% lower in Milan trading, while Banca Popolare di Milano ended the day 7.9% lower. UniCredit SpA, Italy’s largest bank by assets, fell 3.4%.
Monte dei Paschi di Siena and its advisers have decided to wait for at least three days before deciding whether to proceed with the bank’s €5 billion ($5.30 billion) recapitalization plan, a person familiar with the matter said Monday, after the “no” vote in Italy’s constitutional referendum threatens to derail the plan. The person said the advisers and Monte dei Paschi hope to know who the new Italian prime minister will be before taking any decision. Prime Minister Matteo Renzi tendered his resignation Monday evening to Italian President Sergio Mattarella.Mr. Mattarella accepted it, but asked Mr. Renzi to remain in power to oversee the passage of Italy’s 2017 budget law, which is expected by week’s end.
Any sign that the new prime minister will follow in the footsteps of the current government and help achieve market stability will be seen positively by potential investors in the troubled banks. The person said the investment banks working on MPS’ plan and the Tuscan bank will decide on the recapitalization by Friday. On Sunday, Italians rejected a change to Italy’s constitution that was proposed by Mr. Renzi.
According to the people familiar with the matter, a nationalization of Monte dei Paschi is now more likely, since its plans for its critical capital increase are unlikely to proceed after the vote, though a small chance remains that the bank will find a private-sector solution. The prospect of Italian banks needing a government rescue was echoed by European Central Bank Governing Council member Ewald Nowotny. “The difference between Italy and other countries is that in Italy there’s essentially been no state aid or takeovers,” Mr. Nowotny said on Monday, speaking in Vienna. “It’s not to be excluded that state aid is necessary,” he said.
The bank met with its advisers on Monday to consider its next moves, the people said. Monte dei Paschi’s board is scheduled to meet Tuesday. However, a full decision on whether to nationalize the bank could come only when a new government is formed in Italy, according to the people familiar with the situation. Another person familiar with the matter said the Italian government and the European Commission have been regularly in touch about Monte dei Paschi’s potential nationalization, in case the bank’s recapitalization plan hit a snag.