Nine Italian Banks Fail Stress Tests

By Giovanni Legorano 

ROME--Nine Italian banks failed European regulators' financial-health checks, the biggest concentration of troubled banks in the European Central Bank's stress tests.

A total of 25 eurozone banks flunked the tests, facing a cumulative capital shortfall of EUR24.6 billion ($31.17 billion). Other countries with multiple failures include Greece and Cyprus.

In Italy, the nine banks came up nearly EUR10 billion short on capital in the tests. However, five of the nine failed banks already have managed to fill their capital holes. The other four banks have two weeks to present plans to regulators explaining how they intend to close the capital gaps.

Banca Monte dei Paschi di Siena SpA, Banca Carige SpA, Banca Popolare di Milano SCARL and Banca Popolare di Vicenza ScpA face a collective capital shortfall of EUR3.3 billion, according to the Bank of Italy.

The five banks that failed the tests but subsequently came up with additional capital are Banco Popolare SC, Banca Popolare dell'Emilia Romagna SC, Banca Popolare di Sondrio SCpA, Veneto Banca SCpA and Credito Valtellinese SC.

The Bank of Italy, which has been on the defensive for years about the adequacy of the supervision of its banks, argued that the capital shortfall is smaller than it seems. Taking into account capital-generating measures such as asset sales and accounting adjustments, the banks' outstanding capital shortfall shrinks to EUR2.9 billion. Banca Carige, for example, is selling two insurance businesses to help close its EUR814 million gap.

"The results confirm the solidity of the Italian banking system, despite repeated shocks suffered by the Italian economy in the last six years," the Bank of Italy said in a statement.

The biggest problem area is Monte dei Paschi, which is Italy's third-largest lender. It needs to come up with EUR2.11 billion in capital, which includes funds to pay back part of a government loan.

Italy's two largest banks, UniCredit SpA and Intesa Sanpaolo Spa, both passed the tests.

Write to Giovanni Legorano at [e-mail]