European stock markets fizzed higher yesterday as investors toasted news of a €17bn ($19bn) rescue deal in Italy’s long-troubled bank sector.
The Italian government has stepped in to liquidate two insolvent banks, Veneto Banca and Banca Popolare di Vicenza, averting a threat to the country’s fragile banking system.
The two failing lenders’ healthy assets are being sold to Intesa Sanpaolo, one of Italy’s biggest banks, for a symbolic price of one euro.
At the same time, outstanding loans that are in or near default are being transferred into a so-called “bad bank.”
The deal, unveiled Sunday, is likely to cost Italian taxpayers up to €17bn.
The news was greeted with relief across trading floors, amid fears of a potential new phase in the eurozone debt crisis.
“Italy has just shown the age of bailouts is not over.
That significantly reduces the risk of an investment in a bank going sour,” said Jasper Lawler, Senior Market Analyst at LCG.
David Madden at trading firm IG said “there are still questions hanging over the Italian banking sector, but for now investors are content with the continent’s financial health”.
Some cautioned, however, that the weekend’s rescue mission could be one of several to come.
“Let’s hope the Italian government has deep pockets given that this particular bailout is a fraction of the non-performing loans in the Italian banking system, of which it is estimated there are about €300bn,” said Michael Hewson at CMC Markets.
The European bank sector rebounded.
Commerzbank and Deutsche Bank jumped by up to 2% in Frankfurt, while in London, Barclays, Royal Bank of Scotland and HSBC all added 1.5% or more.
“The Italian banking situation has long been a background concern for its European peers, the issue every now and again bubbling to the surface to spook markets,” added Spreadex analyst Connor Campbell.
“The bailout, then, has been greeted with relief by the sector as a whole, even if it has sparked anger...especially in Germany.”
Also on the continent, Nestle and L’Oreal shares boomed after US hedge fund Third Point bought 1% stake in the Swiss food giant and immediately urged it to sell its large holding in L’Oreal.
The fund says Nestle, which makes Nescafe coffee and Perrier water, has probably the best portfolio of brands in the sector, but has not kept up with changing consumer tastes and buying habits in recent years.
The Frankfurt market was further underpinned by German business confidence soaring to a “jubilant” new high in June, having already reached a quarter-century peak the previous month, a survey said yesterday.
Wall Street gave up some of its early gains approaching midday in New York, as a fragile earlier recovery in the oil price fizzled out.
Earlier in Asia energy firms had risen as the increase in oil prices helped recover some of last week’s hefty losses.
Japanese stocks finished 0.10% higher.
Tokyo-listed airbag maker Takata was suspended after the crisis-hit firm filed for bankruptcy protection.
The company faces lawsuits as well as huge costs after deadly faults in its airbags triggered the auto industry’s biggest safety recall ever.
In London, the FTSE 100 closed up 0.3% at 7,446.80 points; Frankfurt — DAX 30 rose 0.3% at 12,770.83 points and Paris — CAC 40 ended up 0.6% at 5,295.75 points yesterday.


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