Credit Suisse sees strict bail-in of Italian banks as most likely scenario

The most likely scenario heading into the Italian constitutional referendum was for a win by the 'no' camp, which would make attempts to recapitalise the country's lenders that much harder and lead to an increased risk of a "moderate" bank run, a top investment bank said.

Credit Suisse strategist Carlo Tomasselli said that under a 'soft-No' scenario, in which Prime Minister Matteo Renzi's constitutional reform proposals were voted down by a narrow margin, then that might reduce uncertainty by making it easier to form a new government afterwards, supported by an enlarged coalition.

A 'hard-No' on the other hand could pave the way for the populist anti-Europe 5 Star party to win the elections.

To take into account, a new vote would be unlikely before early 2017, when the electoral law was set to change, he pointed out.

Furthermore, regardless of the outcome of the vote, the most likely scenario for banks' recapitalisations was a 'strict' approach in which authorities forced a 'bail-in'.

"This could be the most likely scenario, as it would comply with current rules. It is a worst case scenario though as it would increase the risk of a moderate bank run," Tomasselli said.

Furthermore, in his opinion financial markets had yet to price-in that scenario.

In the specific case of Unicredit, and regardless of the outcome of the referendum, a potential rights issue amount of between €12bn and €13bn, would be "challenging", the Swiss broker said.

Other options open to officials, which the strategist thought unlikely, included waiving the restriction on a direct bail-out of the lenders due to the risks for financial stability.

That would provide systemic risk relief, Credit Suisse said, while a 'partly flexible' approach would see Rome grant lenders permission to delay their recapitalisation, although in the broker's opinion that would not necessarily be positive.