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Referendum defeat: Italian banking shares poised for worst since 2011

Italian banking shares suffered heavy losses after Matteo Renzi’s heavy constitutional referendum defeat revived fresh concerns about the fragility of the country’s financial system.

In turbulent trading, Italy’s banks index fell by as much as 4.8 per cent in early trade as investors feared efforts to raise capital for beleaguered banks could be derailed by political uncertainty. The index, which has plunged by 46.9 per cent so far this year, is now on track for its biggest annual fall since the height of the euro debt crisis in 2011.

Despite creeping into positive territory, the banks index closed down 2.2 per cent. Shares Monte dei Paschi tumbled 4.2 per cent, while UniCredit surrendered 3.3 per cent, Banca Popolare Milano dropped 7.9 per cent, and Mediobanco lost 4.2 per cent.

The world’s oldest bank Monte dei Paschi faced the biggest blow of the ‘No’ vote as it puts its €5bn (£4.22bn) rescue plan in danger of failing. The bank, which was rated the weakest lender in European stress tests this summer, now needs to raise the money by the end of the month to stay in business.

A decision on its private recapitalisation plan is expected to be taken in the next three to four days as investors are waiting for political developments to become clearer before committing.

It came as ratings agency DBRS signalled that it was likely to strip Italy of its top tier credit rating in the coming weeks in a move that would push up funding costs for the country’s embattled banks.

Fergus McCormick, co-head of sovereign ratings at DBRS, said the No vote had consigned Italy to a prolonged period of near stagnation. “This is certainly credit negative,” he told Reuters.

“We would expect less government stability and greater political uncertainty in the near term.” DBRS is due to make a decision on Italy’s credit rating “at the latest” by February 2017.

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