The iShares MSCI Italy Capped ETF (NYSEArca: EWI) is off 19.4% year-to-date, putting the largest Italy exchange traded fund almost into a new bear market as global investors have speculated Italy has the potential to become the Eurozone’s next problem child.
Still, EWI was able to climb nearly 3% last Friday, after index provider MSCI said Banca Monte dei Paschi di Siena SpA will be removed from its Italy indexes on Feb. 29. Banca Monte dei Paschi di Siena, Italy’s third-largest bank, commands a weight of just over 1% in EWI. The ETF devotes 34.1% of its weight to the financial services sector, by far its largest sector weight.
“Monte dei Paschi, bailed out twice since 2009, has been engulfed by legal probes into former managers who had masked losses. After tapping investors for funds to replenish capital, Chief Executive Officer Fabrizio Viola is now seeking a buyer to help restore profit as bad loans mount,” according to Bloomberg.
The bank is reportedly seeking a buyer.
Last year, reforms to Italy’s banking sector were seen as a potential driver of improved equity market performance. Specifically, the reforms would turn these types of banks into possible takeover targets almost instantly. For instance, the new rules could be a catalyst for a potential merger between UBI Banca and Banca Monte dei Paschi di Siena. [Catalysts for the Italy ETF]