May 25, 2018 / 4:25 PM / a month ago

Banco BPM shares tank as Goldman Sachs warns foreign demand for bad loans may weaken

MILAN (Reuters) - Shares in Banco BPM (BAMI.MI), Italy’s third-largest lender, closed down 7.3 percent on Friday, leading losses in Italian banking shares as the prospect of an anti-establishment government hit the sector.

It was the top loser on the Milan stock exchange.

The new government’s program combining tax cuts and a spending rampage has pushed Italy’s debt costs higher, in a blow to the value of banks’ large sovereign holdings.

Further, banks stands to lose in the short term on tax assets if the new government reduces tax rates as pledged. Investors also fear a clean-up process demanded by regulators may slow down, with foreign investors demanding a bigger discount to buy soured bank debts due to political instability.

Italy’s banking index .FTIT8300 closed down 3.7 percent at a near one-year low.

Banco BPM was the worst hit after a downgrade to “neutral” by Goldman Sachs analysts, who said bad loan disposals remained key for the bank but foreign demand for distressed assets in Italy was now more uncertain.

Banco BPM, which was born early last year from the merger of Banco Popolare and Popolare di Milano, had already come under pressure recently after disappointing investors with first-quarter earnings.

Reporting by Valentina Za; Editing by Susan Fenton

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