Italian Banks Collapse, Short Sales Banned As Loan Loss Fears Mount

Tyler Durden's picture

Italian bank stocks are crashing (with BMPS down 40% year-to-date) as Reuters reports that investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid. The broad banking sector is down 4% with stocks suspended, and in light of this bloodbath, Italian regulators have decided in their wisdom, to ban short-selling of some bank stocks (which has driven hedgers into the CDS market, spking BMPS credit risk).

Italy's banking index was down over 4 percent with shares in several lenders, including the country's biggest retail bank Intesa Sanpaolo and the third biggest lender Banca Monte dei Paschi di Siena, suspended from trading after heavy losses.

Bloodbath for Italian financials in 2016...

 

But don't worry:

  • *MONTE PASCHI CEO CONFIRMS FINANCIAL STABILITY OF BANK
  • *MONTE PASCHI CEO: STOCK DECLINE NOT JUSTIFIED BY FUNDAMENTALS

As Reuters reports,

Investors are growing increasingly nervous about how the sector will cope with lower interest rates and a 200 billion euro ($218 billion) pile of loans that are unlikely to be repaid.

 

Those concerns are trumping expectations about a wave of consolidation set to sweep the sector, with cooperative banks under pressure to merge following a government reform to reduce the number of lenders.

 

JP Morgan said this month Italian banks should be avoided because low rates are expected to put pressure on revenues more than in other countries and credit problems limit a recovery in provisions.

 

Traders have suggested exiting investments that have been particularly favoured, such as Popolare di Milano and Intesa, as the stocks have reached key supports.

 

"I think upside on cooperative banks this year is much more limited," said a London-based equity sales person.

 

Short interest in Popolare di Milano soared 50 percent to 1.1 percent in the last month, and it rose 10 percent to 3.9 percent for UBI, according to Markit data.

And now, Italian regulators have re-enforced a short-selling ban (because that has always worked so well in the past)...

Consob adopts a temporary ban on short selling on Banca MPS shares.The ban shall apply immediately and shall last until Tuesday 19 January 2016 end of day.

 

Consob decided to temporary prohibit short sales of the share Banca MPS (ISIN code IT0005092165).

 

The ban will apply immediately and will be enforce for the entire trading session of tomorrow, Tuesday 19 January 2016, on the MTA market of Borsa Italiana.

 

The prohibition was adopted pursuant to Article 23 of the EU Regulation on short selling, considering the price change recorded by the share on 18 January 2016 (in excess of 10%).

 

The prohibition applies to short sales backed by stock lending. This extended the scope of the prohibition of naked short selling, already in force for all shares from 1st November 2012 by virtue of the EU Regulation on short selling.

And so hedgers have shifted to other markets - spiking default risk across the entire group, soaring back towards pre-"whatever it takes" levels...

Get back to work Mr Draghi.