By Carlo Martuscelli and Adriano Marchese

 

Shares in Italian banks rallied Thursday, as the nomination of Christine Lagarde to head up the European Central Bank and the European Commission's decision to not slap Italy with a fiscal disciplinary measure helped shore up confidence in the sector.

At 1226 GMT the FTSE MIB was by far the biggest gainer among major European bourses, trading 0.7% higher, with shares of Banca Monte dei Paschi di Siena SpA (BMPS.MI)--up 13% to EUR1.34--leading the gainers on the Italian exchange. UniCredit SpA (UCG.MI) was up 3.9% at EUR11.57 and Intesa Sanpaolo SpA (ISP.MI) was 2% higher at EUR2.02.

The nomination of Ms. Lagarde, managing director of the International Monetary Fund, to lead the ECB triggered a fall in European bond yields across the board Wednesday, from core to periphery.

Italian 10-year bond yields trade at 1.624%, down 1.6 basis points on the day and down from 2.079% from Friday last week, according to Tradeweb. Banks in the country, which hold a significant proportion of the government's debt, benefit from falling yields.

Dermot O'Leary, an analyst at brokerage Goodbody, said Ms. Lagarde is expected to continue the easy-money policies rolled out by her predecessor, Mario Draghi. The measures helped Europe's distressed economic system during the financial crisis but drew the ire of German bankers who opposed below-zero interest rates and the ECB's bond-buying program.

"More importantly, she is a politician that has been deeply invested in the success of the euro area project," Mr. O'Leary said. "A more conventional central banker, particularly one with the credentials of the Bundesbank, would have decreased the probability of more unconventional policies being used in the future."

Italian banks are also benefiting from the Commission's decision on Wednesday to not ask the Economic and Financial Affairs Council to open an excessive deficit procedure against Italy after the Italian ministry of finance gave evidence of improvements to the country's 2019 state accounts. The decision to not impose corrective budgetary measures on Italy contributed to improving sentiment toward its finances.

On Monday, Rome had said its budget would now have a nominal deficit of 2.1% of gross domestic product, well within the EU's 3% limit. However, the government wouldn't provide detailed assurances on the 2020 draft budget, a condition requested by the EU, but only committed to meeting the stability pact requirements for that year.

 

Write to Carlo Martuscelli at carlo.martuscelli@dowjones.com and Adriano Marchese at adriano.marchese@dowjones.com

 

(END) Dow Jones Newswires

July 04, 2019 09:16 ET (13:16 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.
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