UniCredit, in which Abu Dhabi's Aabar has a 5 per cent stake, led bank shares lower on Monday after prime minister Matteo Renzi resigned following a referendum he had orchestrated was defeated.
Italy’s benchmark stock index, the FTSE MIB, dropped as much as 2.1 per cent before recovering some of those losses.
UniCredit, the biggest publicly traded bank in Italy, fell as much as 5.8 per cent. Monte dei Paschi di Sena, its main embattled rival, dropped by as much as 7.5 per cent.
Mr Renzi had called for constitutional changes to undertake much-needed economic reform and the poll on Sunday was considered to be a vote of confidence in the current government.
Italian banks have been weighed down by rising levels of bad debt, estimated to be as high as €360 billion (Dh1.4 trillion), and a number have been planning to clean up their books.
The latest political crisis may put some of those plans on hold as chief executives wait and see what will come next, according to analysts.
“Recapitalisation plans for Italian banks will become more difficult given the strong ‘No’ and pending political paralysis,” said Christoph Rieger, a strategist at Commerzbank.
“Most likely, banks will be given more time in order to avoid a bail-in of sub-debt, which is largely held by retail and would thus further strengthen the populist movement.”
UniCredit has, however, been taking measures to improve its financial situation. The Financial Times reported on Monday that UniCredit had agreed to sell its asset management arm Pioneer to France's Amundi for €3bn, a move that will help to boost its capital.
The sale of the unit comes ahead of a turnaround plan that is to be unveiled by UniCredit’s chief executive Jean-Pierre Mustier on December 13.
The London-based newspaper, citing people familiar with the situation, said that the plan is expected to result in a €13bn capital increase as well as the sale of Pioneer and its Polish business Pekao. UniCredit has been buffeted by faltering growth in Europe, bad debts in Italy as well as its exposure to the Russian market and the weak rouble.
Aabar, which has a diversified investment portfolio, is owned by International Petroleum Investment Company.
mkassem@thenational.ae
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