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Italian Banks Lobby to Tap Into Surging Gold Prices

Italian banks, which by a quirk of law are shareholders in the country’s central bank, are lobbying to have their stakes in the Bank of Italy marked-to-market on the back of surging gold prices in an attempt to ease regulatory pressure on them to raise capital in advance of this summer’s stress tests.

Cash and gold
Lilli Day | Photodisc | Getty Images
Cash and gold

The move comes as Mario Draghi, Bank of Italy governor, over the weekend stepped up pressure on Italian banks, which are some of the lowest capitalized in Europe, to increase their core capital ratios or make clear to the market any plans to do so.

The Bank of Italy currently has a nominal value of just €156,000 ($215,000) divided into 300,000 shares which are distributed among Italy’s retail and savings banks according to their size.

Senior bankers say taking into account the surge in gold prices the Bank of Italy could have a mark-to-market value of about €30 billion. Analysts estimate the Italian banking sector has combined recapitalization needs of much the same amount to comply with new Basel III capital rules.

Any debate over the value of the Bank of Italy has met with opposition from the central bank concerned that it could harm governance. For the same reason, executives at Italy’s banks are not involved in the central bank’s decision-making process.

But several sources familiar with the talks say Italy’s banking lobby is gaining political traction amid opposition from its core shareholders, the local banking foundations, to capital increases as they fear a dilution of their stakes.

Italy’s government has also indicated there is a political will to reduce the need for Italian banks to access the capital markets.

After heavy lobbying from banks and foundations, the government last week forced through a motion, using a confidence vote, that will ease capital pressures on the banks by allowing them to book some deferred taxes as assets.

Monte dei Paschi di Siena and Banca Popolare di Milano, a regional lender, are the banks seen as most likely to have to tap the market as they have core tier one capital ratios of under 8 percent and little room for assets sales.

Both banks have denied any such plans. The capital structure of UniCredit, Italy’s largest bank by assets, is also in the spotlight as the future of its main shareholders – the Libyan Central Bank and Libyan Investment Authority – is unclear.

Intesa Sanpaolo, Italy’s largest bank by retail network, has core capital of about 8 percent, which could also be considered too low for a potentially systemically important bank.

Intesa Sanpaolo would be the biggest beneficiary of any capital revaluation with a 30 percent stake in the central bank.

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