Downgrade overshadows Italian bank Intesa’s strong stress test showing

Intesa Sanpaolo’s (ISP.MI) shares fell by more than 2 percent on Monday, as a Goldman Sachs downgrade outweighed a strong performance by Italy’s top retail bank in Europe’s stress tests.

A spike in Italy’s borrowing costs has thrust Italian banks into the spotlight, cutting the value of their large sovereign holdings and eroding their capital reserves.

But in last week’s European health check of the sector even the worst-performing Italian bank, Banco BPM (BAMI.MI), had a core capital ratio of 6.67 percent under a so-called adverse scenario, well above the alarm threshold of 5.5 percent.

The four Italian banks tested by the European Banking Authority (EBA), whose results were released on Friday, performed in line with the European average of the 48 banks surveyed under the adverse scenario.

However, traders said the market had paid closer to attention to a Goldman Sachs note which downgraded both Intesa and smaller peer BPER Banca (EMII.MI) to ‘sell’, leaving UniCredit (CRDI.MI) as the only ‘buy’ among Italian banks.

Intesa … is a well-managed institution with a comfortable capital position. That said, its results will be subject to a deteriorating macro outlook,Goldman’s note of Nov. 2 said.

With a valuation in line with Dutch bank ING’s (INGA.AS) or Spain’s BBVA (BBVA.MC) and at a 50 premium to domestic rival UniCredit, Intesa’s position looks vulnerable, Goldman said.

Intesa is due to report third-quarter results on Tuesday and analysts expect its core asset management business to have suffered due to market turmoil over Italian assets.

Italy’s populist government has locked horns with the European Commission over its 2019 budget, which plans to raise the state deficit to 2.4 percent of domestic output from 1.8 percent.

Brussels has rejected Italy’s draft budget and given Rome until Nov. 13 to submit changes.

By 0920 GMT shares in Banco BPM fell 1.8 percent while BPER, whose shares were down 4 percent, was the biggest loser on the Italian banking index .FTIT8300.



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