Italy eyes €40bn bank rescue as first Brexit domino falls

Italy is preparing a €40bn rescue of its financial system as bank shares collapse on the Milan bourse, and the powerful aftershocks of Brexit shake European markets. “This is the moment of truth we have all been waiting for a long time. We just didn’t know it would be Brexit that set the elephant loose,” said a top Italian banker. Italy’s banks are the Achilles Heel of the eurozone financial system. Non-performing loans have ratcheted up to 18pc of total balance sheets. As a result of the country’s slide into depression after the Lehman crisis. It is now almost impossible for Italian banks to raise capital. They are caught in a pincer as the ECB simultaneously demands compliance with tougher capital adequacy buffers, in some case demanding fresh infusions of capital three or four times. Hedge fund veteran George Soros warned that Italy faces the risk of a “full-blown banking crisis” that could bring the rebel Five Star Movement to power as early as next year. Read the latest from Ambrose Evans-Pritchard: (VIEW LINK)