- Title: Italians fear for their banks ahead of Sunday's referendum
- Date: 1st December 2016
- Summary: ROME, ITALY (FILE - SEPTEMBER 2016) (REUTERS) VARIOUS PEOPLE SHOPPING IN CAMPO DEI FIORI FRUIT AND VEGETABLE MARKET
- Embargoed: 16th December 2016 09:54
- Keywords: Italy Referendum Banks Monte Dei Paschi Salvini
- Location: ROME AND SIENA, ITALY
- City: ROME AND SIENA, ITALY
- Country: Italy
- Reuters ID: LVA0045B1YBLZ
- Aspect Ratio: 16:9
- Story Text: Italians are gearing up to vote in a constitutional referendum on Sunday (December 4) as analysts fear that Italy's battered banks could be the main casualty if the outcome triggers a government crisis.
Prime Minister Matteo Renzi has threatened to resign if voters reject his constitutional reform, likely fuelling political instability and spooking financial markets, which would make it hard for lenders to raise the capital they need.
The vote is on Prime Minister Matteo Renzi's plans to abolish the elected upper house Senate and replace it with a chamber of regional representatives which will have much reduced powers. The government is also proposing taking back some key decision-making powers from the regions.
Renzi got parliamentary approval for the overhaul, but failed to secure the backing of two-thirds of lawmakers. As a result, because this calls for a change to the constitution, he had to call a referendum to get the reform passed into law.
Initially the plan was backed by 70 percent of Italians, but when an over-confident Renzi said at the end of 2015 he would resign if defeated, opposition parties turned the referendum into a de facto ballot on his 2-1/2 years in office.
Professor of contemporary history at Rome's Luiss University, Giovanni Orsina believes Italy will have major problems if reforms aren't carried out.
"What I certainly see is major problems for the euro in the future if Italy doesn't make the reforms that make its public debts sustainable," said Orsina.
"And I believe that with a 'yes' vote it will be easier to make those reforms," Orsina added.
Italian's faith in the EU took a battering during the recent financial crisis, and both the 5-Star Movement and opposition Northern League are against the euro currency.
Matteo Salvini, the leader of Italy's anti-immigrant Northern League has said he would run for prime minister at the next election and has been urging Italians to vote 'No' and to get rid of the euro.
"It was an incorrect experiment. A common currency for 18 different tax systems, different legal systems, health systems was an unnatural experiment. We have seven Nobel prize winning economists who certify there should be an end to this experiment," said Salvini.
Weakened by a deep recession that left behind 356 billion euros ($377 billion) in gross problem loans, Italian banks need at least 20 billion euros in capital in the coming months to cover losses from fresh loan writedowns and planned bad debt disposals.
Capital needs could almost double if banks tried to raise provisions on so-called "unlikely to pay" and "past due" loans to the 40 percent level the European Central Bank has imposed on weak link Monte dei Paschi di Siena.
"The problem if Renzi loses is that it could usher in a period of political instability in Italy and investors hate that. The first field of consequences are likely to be Italy's debt-laden banks. Italy's third largest lender, Monte dei Paschi di Siena, needs five billion euros from the market next week and if there is political turmoil the investors will stay away," said Reuters Chief correspondent, Crispian Balmer.
"Behind Monte dei Paschi di Siena there are seven other banks in great trouble, so you could see a domino effect," Balmer added.
Uncertainty ahead of the vote has prevented Monte dei Paschi from securing firm investor commitment.
Sources have said bigger rival UniCredit, Italy's biggest bank by assets, will wait until February 2017 before seeking to raise as much as 13 billion euros in a share issue.
UniCredit, which has assets outside of Italy, is expected to weather any market storm, but Banca Carige, Popolare di Vicenza and Veneto Banca are also at work to shed bad loans and investors worry a "No" victory would hamper possible cash calls.
The fate of Prime Minister Renzi's administration will be decided after the polls close on Sunday (December 4) at 2300 local time (2200gmt).
- Copyright Holder: FILE REUTERS (CAN SELL)
- Copyright Notice: (c) Copyright Thomson Reuters 2016. Open For Restrictions - http://about.reuters.com/fulllegal.asp
- Usage Terms/Restrictions: None