The Italian government and top lenders could come up with a plan for a state-backed fund to mend Italy’s financial sector, bolstering bank shares and country-specific exchange traded funds on Monday.
The iShares MSCI Italy Capped ETF (NYSEArca: EWI) rose 1.9% Monday and popped back above its short-term, 50-day simple moving average.
The FTSE Italia All-Shares Bank Index closed 2.8% higher Monday for a 10.5% gain since Thursday’s close. The financial sector rallied on bets that of a bailout announcement soon.
Shares of Italian banks have lost about a third of tier value since the start of the year on concerns over a precarious financial system. EWI has declined 14.4% year-to-date.
EWI includes a hefty 33.1% tilt toward the financial sector, including Intesa Sanpaolo 12.0%, Unicredit 5.8% and Assicurazioni Generali 4.7% among its top holdings.
Economy Minister Pier Carlo Padoan called a meeting in Rome with executives from Italy’s top financial institutions on Monday to hash out a plan for a state-backed fund to acquire bad loans and cover capital shortfalls, reports Silvia Aloisi for Reuters.
“This is the right week,” Prime Minister Matteo Renzi told reporters when asked about the plan’s timing.[related_stories]
The proposed fund could include up to €5 billion in equity from lenders and investors in Italy, along with debt, and would try to buy shares of distressed banks. Additionally, a secondary vehicle could acquire non-performing loans.
The Italian government has been under pressure to calm concerns over its ailing banking system, which underperformed in the European Central Bank’s 2014 financial stress test and is holding €360 billion, or $410.5 billion, in bad loans.
The European financial sector ETF, iShares MSCI Europe Financials ETF (NYSEArca: EUFN), which tracks European financial companies, also gained 1.3% and was trading around its 50-day trend line on Monday. EUFN includes a 5.5% tilt toward Italy.
Meanwhile, the broader Vanguard FTSE Europe ETF (NYSEArca: VGK), which has a 3.8% tilt toward Italy and 18.8% in financials, was up 0.5% Monday.
iShares MSCI Italy Capped ETF