Derivative Exposure Creates Major Issues for EU Banks - from TRUNEWS

The difficulties facing Italian banks over their bad loans are miniscule by comparison with the problems some European banks face over their derivative exposure, Prime Minister Matteo Renzi said on Wednesday.

Renzi’s comments appeared to be directed at Deutsche Bank (DBKGn.DE), which has outstanding derivative positions running into trillions of euros, and marked an escalation in his war of words aimed at securing an EU deal over Italy’s troubled lenders.

Italian Prime Minister Matteo Renzi leaves the EU Summit in Brussels, Belgium, June 28, 2016. REUTERS/FRANCOIS LENOIR

Italian bank shares have crumpled over the past 10 days, hit by anxiety over the sector’s pile of non-performing loans, totalling some 360 billion euros (£309 billion), and reviving fears of possible financial disaster in the eurozone’s third-largest economy.

Speaking at a joint news conference with Swedish Prime Minister Stefan Lofven, Renzi said other European banks had much bigger headaches than their Italian counterparts.

“If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred,” Renzi said.

He did not directly name Deutsche Bank, but he has singled it out for criticism in the past, including last December, when he said he would not swap Italian banks for their German peers.

Rome is in talks with Brussels to devise a plan to recapitalise its lenders, including Italy’s third-largest lender, Banca Monte dei Paschi di Siena (BMPS.MI), whose share price has dropped some 75 percent this year.

Italian officials had argued that volatility caused by Britain’s vote to leave the European Union meant it should be given greater flexibility to prop up struggling banks.

However, German Chancellor Angela Merkel slapped down the suggestion, saying new rules for bank rescues, which reduce governments’ room for manoeuvre, had to be respected.

Renzi told reporters that a solution was being found for Italy‘s non-performing loan woes and said savers had nothing to worry about. But he said Europe had a wider credit problem that needed to be tackled.

“I am certain that the European authorities will think carefully about this in the coming days,” he said.

(Reporting by Isla Binnie; Editing by Crispian Balmer and David Evans)

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