The European Central Bank’s results for the Comprehensive Assessment of the financial market, or bank stress-test, is scheduled to be revealed on Sunday. Investors may have to keep watch over weaker areas, such as Greece and Italy related exchange traded funds.
Last week, the Banca Monte dei Paschi di Siena stock briefly crossed into a bear market, and after a weekend press release warned of a potential capital shortfall of up to €1.7 billion, the bank’s shares declined further Monday, reports Paul J. Davies for the Wall Street Journal.
“There are concerns about the stress tests,” a Milan trader said, commenting on the latest fall in the bank’s share price, Reuters reports.
The iShares MSCI Italy Capped ETF (NYSEArca: EWI) includes a 2.3% allocation toward Banca Monte dei Paschi di Siena, along with a heavy 37.0% tilt toward the financial sector. EWI dipped 1.5% over the past week and is down 12.4% over the past month.
Meanwhile, in Greece, observers are concerned about the capital quality in banks. Greek banks rely on deferred tax assets to shore up the unhealthy parts of their capital, which needs to be replaced. The government is seeking to replace these assets with about €11 billion in sovereign loans, but the government can not afford the expense.
The Global X FTSE Greece 20 ETF (NYSEArca: GREK) includes heavy weights in Piraeus 8.0%, Eurobank Ergasias 8.1% and National Bank of Greece 11.0%, which all experienced heavy sell alongside Monte dei Paschi last week. GREK has a 33.3% allocation toward financials. The ETF declined 3.9% over the past week and is down 15.9% over the past month.