(Bloomberg) -- Banca Monte dei Paschi di Siena SpA led Italian banks to new record lows in Milan on Monday amid fresh concerns the country's lenders are under pressure to raise capital to bolster their finances.
The European Central Bank has asked Monte Paschi to draw up a plan for tackling its bad-loan burden, asking the lender to reduce its load of soured debt to 14.6 billion euros ($16.2 billion) in 2018 from 24.2 billion euros at the end of 2015, Italy's third-biggest bank said in a statement Monday.
Selling such a large stock of soured loans “could lead the bank to seek additional capital that investors are not available to provide,” said Vincenzo Longo, a strategist at IG Markets in Milan. “The government's moves to seek easier rules to support Italian banks underscores the difficulty of the weakest ones, adding pressure to the industry.”
Italian Prime Minister Matteo Renzi is weighing injecting capital into the nation's banks after Britain's vote to leave the European Union jolted stock markets, aggravating the decline in Italy's lenders. The plan has drawn opposition from Germany and is pitting Renzi against the EU amid concern government funding would violate the region's state-aid rules.
Seven of the 10 biggest decliners in the STOXX 600 Banks Index were Italian lenders, with Monte Paschi dropping 8.2 percent as of 9:40 a.m., while UniCredit SpA fell 3.3 percent. The benchmark index, which tracks 48 banks, dropped 1.1 percent.
Renzi will respect European Union rules on state aid for banks, an Italian official said on Monday. Italian newspaper la Repubblica earlier reported the ECB's request for Monte Paschi.
Monte Paschi, which has dropped 70 percent this year, has sold 2 billion euros of bad loans since 2015, toward a goal of 5.5 billion euros in such disposals by 2018. Chief Executive Officer Fabrizio Viola said in May that he is considering accelerating the effort.
To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net. To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net, Cindy Roberts, Ross Larsen
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