Europe open: Italian banks slump but European investors shrug off Renzi resignation

European stocks shrugged off the resignation of Italian PM Matteo Renzi on Monday after he suffered a heavy defeat in a referendum on constitutional reform, although Italian banks remained in the doldrums.

At 0840 GMT, Italy’s FTSE MIB was down 1.3%, with banks under the cosh as investors worried that political instability would make the task of sorting out non-performing loan issues even more difficult. The FTSE Italia All-Share Bank index was down 3.9%.

Monte dei Paschi di Siena was 4% amid concerns about risks to the troubled lender’s €5bn cash call, which was due to start this week. Banco Popolare di Milano and Banco Popolare were sharply lower, as was UniCredit, which was reported to have started exclusive talks with France’s Amundi to sell its asset management arm Pioneer Investments. Amundi gained 3% on the news.

At the same time, the yield on Italy’s 10-year government bond rose above 2%. Yields move inversely to prices.

Elsewhere in Europe, it was a pretty cheery picture, with the benchmark Stoxx Europe 600 index up 1%, Germany’s DAX 1.6% higher and France’s CAC 40 up 0.9%.

In currency markets, the euro had steadied by the European open, trading down just 0.1% against the dollar at 1.0646, having fallen to a 20-month low during the Asian session.

Neil Wilson, senior market analyst at ETX Capital, said: “So far it’s been a fairly orderly response from the markets to Italy’s referendum result. The FTSE MIB opened over 2% lower but is still well within its recent trading range. Italian banks are sliding 4-5% as they come under the most pressure, as expected.

“A ‘No’ vote had already been priced in although the scale of the defeat for Matteo Renzi has surprised and leads to the prospect of fresh elections next year. A new election brings with it the prospect of anti-EU, anti-eurozone parties coming to power and all that could mean for the single currency. At present however it doesn’t look like the markets are seriously considering Italy’s future in the Eurozone is in any doubt.

He added that while Italian bond yields have spiked, they’re only at levels seen ahead of the referendum, with the prospect of the European Central Bank accelerating Italian bond purchases likely to be lending some support.

In corporate news, Royal Bank of Scotland rose as it reached a settlement with three of the five shareholder groups who said they were misled over the bank’s £12bn fundraising in 2008.