by KG/XINHUA News from the weekend that nine Italian banks failed the European Central Bank (ECB)'s so-called "stress test" sent ripples through the Italian economy Monday, but some experts say the reaction may be overblown. On Sunday, the ECB announced 25 out of 130 banks in the 28-nation bloc failed its "stress test", a comprehensive assessment of the European banking system's capacity to survive a crisis. A total of nine of the banks were in Italy, more than any other three countries combined. Greece and Cyprus, both with much smaller banking systems, were the next most cited, with three banks each. The report is based on information from the end of last year, however, and in many cases banks increased their capital requirements since then. Still, four Italian banks are still seen as troubled (no other EU state has more than two), led by Monte dei Paschi di Siena, Europe's sickest bank, and Banca Carige. Monte dei Paschi is now seeking a potential merger or buyer, with a 2.1-billion-euro (2.6 billion U.S. dollars) shortfall weighing down its books. The much smaller Banca Carige was reported to have an 800-million-euro shortfall, almost equal to the bank's total value. Banca Carige officials said they would seek to raise around 500 billion euros from a share issue. The unexpectedly harsh news hit Italian markets hard Monday. The blue-chip index on the Italian Stock Exchange in Milan fell nearly 2.5 percent, with shares in Monte dei Paschi losing a fifth of their value in a session that saw trading in the company's shares halted twice. The yield on Italian bonds, jumped 1.4 percent Monday, reflecting increased nervousness from investors. "This is obviously a slap in the face for Italy's banks," Javier Noriega, chief economist with investment bankers Hildebrandt and Ferrar, told Xinhua. "You can't say it's good news, but it's also wrong to interpret it as a blanket criticism for the entire banking system. Recall that most Italian banks did fine, and the health of the sector as a whole is improving," said Noriega. Marina Brogi, an economist with La Sapienza University in Rome, agreed. "The banks are doing better than they were at the end of last year," Brogi said in an interview, adding "It's not because the economy is doing better but because of capital increases. Bit it's fair to say it looks worse than it is." Even the Bank of Italy took that line, complaining Monday that the parameters in the "stress test" were unnecessarily harsh and may have even unfairly harsh toward Italian institutions. One exception may be Monte dei Paschia, the troubled Tuscan lender that has been struggling for the last four years. Bank officials did say its shortfall would have been smaller (1.4 billion euros rather than 2.1 billion euros) if the repayment schedule for state aid given to save it from collapse was not figured in. Fabio Panetta, from the Bank of Italy, said preparing for the "stress test" may have aggregated its problems. "The bank was in critical condition and then it was forced to run a 100-meter sprint and so it suffered," he told Italian reporters. As a sign of its weakness, Monte dei Paschi hired Swiss banker UBS and U.S.-based Citibank to help it "explore strategic alternatives", generally considered an indication it is looking for a buyer or deep pocketed partner. (Eric J. Lyman) Italian banks show increased interest, market confidence: Dagong Europe Italian banks during 2014 have shown increased interest and market confidence, a senior analyst of rating agency Dagong Europe said on Monday commenting on European asset quality review and stress test. Carola Saldias, senior director of the financial institutions analytical team at the European branch of Chinese rating agency Dagong Global Credit Rating Co. Ltd, said Italian banks in 2014 raised a total of 11.2 billion euros (about 14.2 billion U.S. dollars) through fresh capital and contingent capital notes issuances (CoCos). She elaborated that the channels employed to strengthen capital levels have varied, combining fresh equity and CoCos, internal capital generation as well as de-leveraging and de-risking initiatives. Banks in peripheral countries, which are significantly affected by the pace of the economic recovery and are still struggling to enter a sustainable economic growth, were among those in major need of raising capital as a result of the asset quality review. Saldias said that Dagong Europe awaits the publication of the restructuring downsizing plan presented by Italian banks, considering that capital increases through market issuances could be challenging due to time constraints.
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