The increasing political uncertainty across advanced economies is risking the stability of the euro zone, the region's central bank warned in a new biannual report on Thursday. The uncertainty surrounding upcoming key referendums and elections across the 19-member euro zone bloc, along with expected policy changes in the U.S. raise inflation and growth challenges for euro area countries, the European Central Bank (ECB) said. Such uncertainty could lead to a global asset market corrections, it stated.
ECB warns that risks of global market corrections have ‘intensified’
Shareholders in Monte dei Paschi di Siena approved a 5 billion euro ($5.3 billion) share issue on Thursday, the third cash call in as many years to keep Italy's third-biggest lender afloat. The Tuscan bank, the world's oldest still in business, needs to raise more than seven times its market value in cash in order to sell bad loans and boost capital after industry stress tests in July singled it out as Europe's weakest. New Chief Executive Marco Morelli told shareholders he had showcased the bank's rescue plan to more than 250 investors, including hedge funds and sovereign wealth funds, in the 70 days since taking office, but had failed to obtain any firm backing. Weighing on investors' mind is a constitutional referendum on Dec. 4 which could topple Italy's reformist government and usher in a period of political instability.
Monte dei Paschi shareholders approve vital capital boost | Daily Mail Online
According to the International Monetary Fund, Italian banks hold roughly $400 billion in troubled loans. Currently, the six worst-performing stocks in the European banking index are all Italian. And the situation could become even worse for those debt-ridden banks if the "no" vote wins. It could undermine the stability of the European financial system and make it more difficult for the Italian banks to turn the corner. "Raising capital will be more difficult with a big 'no,'" said Alberto Gallo, head of global macro strategies at asset management firm Algebris Investments.
Italy referendum: The next vote that could shake Europe is next week
Monte dei Paschi (BMDPY) , the world's oldest bank, secured the backing of shareholders for its latest bailout on Thursday. But despite the sigh of relief that might of whisked through the hallways of the bank on Thursday night, Monte dei Paschi's biggest challenge is still ahead. The vote gives the board the authority to push forward with a JPMorgan Chase (JPM) -led rescue plan that will see it raise €5 billion ($5.3 billion) of new equity -- nearly 10 times its market capitalization. The floundering Italian lender has crumbled steadily over the years since the financial crisis, under strains of a growing pile of nonperforming loans and weak profitability -- leading to no less than four separate bailouts. The rescue plan, which has been pitched as a full and final solution to the bank's woes, will also involve a debt-for-equity swap that requires a number of unsecured creditors to take haircuts equivalent to around 15% of par value. In total, around €3 billion of debts are expected to be converted into equity. Shareholder backing brings the bank one step closer to being back on a sustainable footing, but it doesn't mean that it is out of the woods. The bank must still find buyers for its €27 billion nonperforming loan portfolio and persuade investors to back it with as much as €2 billion of new cash equity -- no easy feat when its market value is little more than €700 million.
Monte dei Paschi's New Hurdle, After Shareholders OK Rescue - TheStreet