Eight Italian banks at risk of collapsing if reforms are rejected
Eight banks are at risk of collapse if Italy votes "no" in Sunday's referendum. Constitutional changes proposed by Prime Minister Matteo Renzi include reducing the role of the senate and the transferring power to the regions. However, Italians are predicted to reject the changes, causing senior officials and bankers to warn of potential market turbulence, particularly if Renzi stands down. Monte dei Pashi di Siena, the world's oldest bank; Populare di Vicenza; Carige; CariChieti; Banca delle Marche; Veneto Banca; CariFerrara, and Banca Etruria are all expected to be badly hit by a "no" vote.
Italian Prime Minister Matteo Renzi at a meeting in Rome on May 5. REUTERS/Max Rossi

Eight Italian banks risk collapse in the coming months if the nation votes "no" to, or against, constitutional changes proposed by Prime Minister Matteo Renzi in Sunday's nationwide referendum.

The proposed changes would reduce the role of the senate and transfer power to the central government from the regions, Reuters reports.

If "no" wins in next Sunday's referendum — most polls put it about 6 percentage points ahead of the "yes" camp — market turmoil and turbulence should follow, according to officials and senior bankers cited by the Financial Times on Sunday.

The world's oldest bank, Monte dei Paschi di Siena, along with Popolare di Vicenza, Veneto Banca, Carige, Banca Etruria, CariChieti, Banca delle Marche, and CariFerrara could all end up at risk if market turbulence prevails.

Market turbulence will stem from the likely resignation of Renzi as prime minister if he loses the vote. It is unclear whether Renzi will stand down, as he has repeatedly changed his stance in the lead-up to the referendum.

Based on the assumption that Renzi does step down, Italy will enter a period of great uncertainty as it tries to form a transitional government and find a new prime minister. Markets hate uncertainty, meaning turbulence in Italian equities, bonds, and other asset classes is almost certain to follow.

This, in turn, will make it less likely that investors will want to help recapitalise Italy's risky banks, those cited by the Financial Times argue.

"Senior bankers and officials said that the worst-case scenario was where a failure of Monte Paschi's complex €5bn recapitalisation and bad-debt restructuring demanded by regulators would translate into a wider failure of confidence in Italy and imperil a market solution for its ailing banks," the FT says.

The country's financial sector is plagued by a surfeit of bad loans so great that in April the government was forced to rally bank executives, insurers, and investors into putting €5 billion (£4.2 billion, $5.57 billion) behind a rescue fund for its weakest banks. The Atalante fund is designed to buy so-called bad loans from lenders and invest in their shares in the hope that the re-energized banks will lend more to businesses and spur growth.

Monte dei Paschi di Siena is the worst affected, and at one point this year it held bad loans equivalent to almost 50 times its market capitalisation. The bank managed to agree to a rescue package involving the likes of JPMorgan, Deutsche Bank, and HSBC at the end of July. That package and other recapitalisations could be at risk after a vote no.

"The capital increases of Italian banks due to be announced right after the referendum may become even trickier than currently perceived in the case of a 'No' vote," Lorenzo Codogno, the former chief economist of Italy's Treasury, told the FT.

Worries in the markets about the Italian banking sector are pretty clear Monday morning, with shares in the country's lenders tumbling. Here's how UniCredit, Italy's only globally systemically important bank, looks so far: