Italian Banks Lead European Decliners on Bad-Loan Concerns 

Banca Monte dei Paschi di Siena SpA, bailed out twice since 2009, slumped 15 percent to 76.6 cents in Milan, a fresh record low. Unione di Banche Italiane SpA fell 7.3 percent, while Banco Popolare SC declined 6.7 percent. Europe’s 46-member Stoxx 600 Banks Index decreased 1.9 percent to the lowest since November 2012, bringing losses this year to 15 percent.

“Italian banks’ asset quality is back in the spotlight,” said Wolfram Mrowetz, chairman of Alisei SIM, a Milan brokerage. “A delay in Italy’s bad-bank plan, amid quarrels between Prime Minister Matteo Renzi and European Commissioner Jean-Claude Juncker, and ECB challenges on the high level of non-performing loans are hurting stock.”

Italian banks’ bad loans reached a record high of 201 billion euros ($219 billion) in November, with record-low interest rates and a struggling economy squeezing profit margins. The ECB’s Single Supervisory Mechanism is seeking additional information about lenders’ non-performing loans in order to tackle bad debt across the region, a spokesman said, confirming a Sunday report by Reuters.

‘More Skeptical’

A worsening credit quality is a reason for concern in a number of countries, the ECB wrote in a Jan. 6 report.

“A task force on non-performing loans is reviewing the situation of institutions with high levels of NPLs and will propose follow-up actions,” the central bank said.

In Italy, the government has been struggling to win approval for a bad bank to help speed up disposals of soured loans. Tensions between the country and the European Commission mounted earlier this month when Juncker publicly questioned Renzi’s criticism over an alleged lack of flexibility.

“Turbulence on global financial markets as well as concerns about asset quality are making investors more and more skeptical about the potential for continued outperformance of Italian banks this year,” said Vincenzo Longo, a strategist at IG Markets in Milan. “The selloff is affecting the weakest banks such as Monte dei Paschi and some cooperative banks.”

Italian market regulator Consob imposed a ban on short selling of Monte dei Paschi’s stock for the remainder of Monday’s session through Jan. 19, in an attempt to stabilize shares of the world’s oldest bank, which have dropped about 34 percent this year.

“I confirm Monte Paschi’s financial, economic stability,” Chief Executive Officer Fabrizio Viola said in e-mailed statement after markets closed. “The stock decline is not justified by fundamentals or management events,” he said, reiterating that the bank remains focused on its bad-loan disposals.

Subordinated and senior bonds in troubled banks including Monte dei Paschi, Banca Popolare di Vicenza and Veneto Banca have slumped to record lows this month. Monte Paschi’s 379 million euros of 5.6 percent junior notes fell more than 10 cents to 71.7 cents on Monday, surpassing the previous record low of November 2011.