Italy Banks Pare Losses as ECB Bad-Loan Actions Seen as Minimal

(Bloomberg) -- Italian banks lined up to insist they have bad debt under control after their shares dropped on a report that the European Central Bank is demanding a more effective cleanup.

Financial stocks pared steep losses from earlier after the country’s biggest banks said they won’t be hurt by European Central Bank requests that lenders act quicker and more decisively to tackle problem loans.

The shares dropped after Il Sole 24 Ore reported that the ECB has given all the banks it supervises seven years to cover all their existing and future non performing loans. The details of the report were disputed by a person familiar with the process as lenders sought to contain any damage to their stock.

Intesa doesn’t envisage any significant impact on its financial targets from the recent ECB requests on NPLs, the bank said in a response to the report. UBI Banca SpA and Banco BPM SpA said separately that they see no major effect from the ECB’s recommendations.

UBI, which led decliners with a drop of as much as 10.2 percent was 4.5 percent lower as of 3:32 p.m. in Milan. BPM recovered from an 8.6 percent slid to trade down 4.3 percent and Intesa improved to 1.1 percent down from an earlier slump of 3 percent.

Italian Deputy Prime Minister Matteo Salvini hit out at the European Central Bank, accusing it of attacking the country’s financial industry. The head of the euroskeptic League said the “new attack” by the ECB shows once again that the banking union causes instability in Italy’s financial system and hits citizens’ savings, in remarks cited by newswire Ansa.“Transparency is needed to quash the suspicion that the ECB is making political use of its power.”

Draghi to Speak

ECB President Mario Draghi is scheduled to speak at a European Parliament hearing in Strasbourg on Tuesday afternoon, giving lawmakers the chance to raise Salvini’s accusations and offering Draghi the opportunity to comment.

The ECB sent out letters of advice to all the banks it supervises in December as part of an ongoing program for reducing bad-loan risk. While the goal is that 100 percent of all existing and future NPLs get covered over the medium term, the ECB is determining what steps banks need to take now on a case-by-case basis rather than issuing system-wide deadlines, a person with knowledge of the matter said.

While its earlier guidelines were restricted to loans that will be deemed non-performing in the future, the ECB is now focusing on aligning the levels of coverage for both new and existing bad debt, the regulator said in July.

Case-by-Case

“It’s an unjustified selloff,” said Fidentiis Equities analyst Fabrizio Bernardi. He said banks are still receiving bad loan advice from the ECB on a case-by case basis.

The share slump comes after Banca Monte dei Paschi di Siena SpA stock dropped after it said that the ECB asked for it to increase coverage for soured debt.

Monte Paschi is the only lender so far to disclose the contents of its advice from the ECB. The message highlighted weaknesses in the bank’s capital and profitability and requested that it increase coverage of soured debt. The shares tumbled on Monday.

Monte Paschi’s case is not typical, the person said with knowledge of the process said, asking not to be identified because the matter is private. A representative of the ECB said that the regulator doesn’t comment on individual banks.

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