the rise in global bond yields inspired by donald trump <u+2019>s u.s. election victory has been a tonic to bank stocks everywhere. well, almost. italian banks are enduring another mini-crisis of confidence on twin concerns about political stability and whether weaker banks can raise the capital that they need. that can be seen in a government bond selloff that has been deeper than most other eurozone nations and has increased the gap between italian and german 10-year yields to its widest since may 2014. on the political front, prime minister matteo renzi faces a referendum on constitutional reform on dec. 4, which he could lose, putting his job in doubt . though he has tried to back away from earlier moves to tie his premiership to the vote, some still expect him to stand down if he fails to get at least 40% support and others believe losing by any margin will be enough for him to walk. this threat of instability comes just as italy<u+2019>s banks are trying to put their houses in order. banca monte dei paschi di siena is in the middle of a crucial capital raising and bad-loan restructuring exercise, which will hurt the whole sector if it fails. mps<u+2019>s highly volatile shares will be all but wiped out in the capital raise, but other big italian lenders like unicredit , ubi banca and intesa sanpaolo have seen their shares fall since the u.s. election. elsewhere in europe, many banks are up on hopes that steeper yield curves will help profits. mps this week released terms for a proposed debt-for-equity swap that could bring in <u+20ac>1.5 billion ($1.6 billion) of the <u+20ac>5 billion equity it needs. the terms are well above where the bonds have been trading, offering holders of junior tier 1 debt 85% of face value and slightly less junior tier 2 bonds 100% of face value. if the swap fails, the whole exercise could collapse, leaving mps to go through a painful resolution. despite the risk of substantial losses in that case, individual bondholders might still not participate in the hopes that other bondholders do, leaving them with a safer bond in a recapitalized bank that still pays a juicy interest rate. it is a classic prisoner<u+2019>s dilemma. failure for mps would mean widespread losses for large numbers of retail investors, more political fallout and less chance that italy<u+2019>s largest bank unicredit can raise the <u+20ac>10 billion-plus in fresh capital that it is likely to target in coming months . that would be disastrous. for italy, the next two weeks look to be make or break. write to paul j. davies at paul.davies@wsj.com
trump trade does little for italian banks<u+2019> big problems  - wsj
paul j. davies