Are Italy’s banks really in a perilous state?

12th July 2011

Here is this morning's Reuter's report on the issue and the big impact on share prices.

The bank that is causing most concern is UniCredit down some 30 per cent in value in recent weeks. Its shares were even suspended this morning having fallen more than 7 per cent. Here website Euromoney asks will it need more capital. 

However hedge fund website Zero Hedge suggests that Unicredit's worries are generalised rather than specific and that the bank is even affected by issues surrounding Italy's economy and finance minister Guilio Tremonti.

But perhaps it is not all bad news.

George Hay, Reuters' Breaking Views columnist writes, that Italy's banks may be quite safe because of their conservative outlook.

The country's lenders are quite conservative compared to their counterparts elsewhere in the euro zone periphery. He writes: "At the end of the first quarter, the five largest Italian banks by assets had more deposits than loans. This means they are less dependent on flighty wholesale financing, and are insulated from higher funding costs caused by widening Italian government bond spreads. Italian banks have also so far made limited use of the European Central Bank's weekly liquidity facilities"

Hay also notes that many Italian banks have improved their capital positions and while UniCredit may still need to raise more capital, it is also able to borrow through its German subsidiary at much lower rates.

Here the Wall Street Journal looks at some fund managers' stock specific investment strategies in Europe.

One hedge fund, LNG Capital is unsurprisingly short Italian banks but it does favour some Eurozone periphery country stocks such as Spain's Telefonica.

See also: Italy bond prices get closer to nightmare 7 per cent

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