13th December 2016, GTC Advisors – Italian Banking Crisis

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GENEVA, Switzerland - Dec. 13, 2016 - PRLog -- A second major Italian bank has announced a round of fundraising as UniCredit Banco, Italy's largest bank looks to remove up to €18bn of bad debt off its books.

The move comes as the world's oldest bank, Monte Dei Paschi Di Siena, also Italian, announced it needs to raise €5bn in private investor cash to stave off a government bailout.

UniCredit confirmed that it is seeking to raise over €13bn over the course of the first three months of 2017 as it looks to strengthen up its balance sheet. It also confirmed that it plans to close a quarter of its branches, and axe 14,000 jobs, equivalent to nearly 11% of its workforce over the next two years.

Chief Executive Jean Pierre Mustier spoke after the announcement and said that something significant needed to be done whilst outlining achievable goals for 2019. With an objective of raising its Core Capital Ratio above 12.5%, a return to paying dividends and posting a profit set for the end of 2019 the plan is ambitious.

After the news shares in UniCredit fell over 5% in Milan, continuing the trend as the banks shares have fallen 50% in 2016 alone reducing its market value to €15bn.

Whilst UniCredit have until the end of the first quarter of 2017 to raise the required cash, Monte Dei Paschi have not been as fortunate.

The banks request for an extension from the ECB till the 20th January to complete its proposed €5bn round of fundraising was denied and placed serious time constraints on the financial institution.

They now have only until the end of the year to secure the required funding to avoid a state bailout, if the plan fails, the government, already under pressure will be pushed into providing assistance to Monte Dei Paschi, a move seen by many analysts as a step back towards a European recession.

Although the ECB has confirmed it will continue its QE policy through next year, the fact that Monte was Europe's worst performing major bank after a recent stress assessment by the European Central Bank will not help its situation.

Many believe only government assistance will keep the bank operating.

The FTSE MIB opened lower and continued to fall in early trading Tuesday, but by 9am had started to try and claw back some of the lost ground. With the Federal Reserve's meeting tomorrow expected to announce a rate increase and key data due out of the UK today, European markets are most likely to be cautious today ahead of the impending news out of the US.

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John Healy

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