All of Monte dei Paschi's capital was wiped out in a European Union stress test of banks on Friday as the Italian lender headed for government-sponsored merger talks with domestic peer UniCredit, whose own score fell short of the sector's aggregate performance.
The exercise by the European Banking Authority showed that EU banks took a 265 billion euro hit in a test of their resilience to economic shocks, which still left them with two-thirds of their buffers intact.
Monte dei Paschi said it would have had a core ratio of 6.6% after its proposed 2.5 billion euro capital increase. Thebankhad also fared worst in the EU's stress test five years ago, in a sign of how deep-rooted problems at the world's oldest bank have yet to be sorted out. "Since the start of COVID, there has been a problem of visibility of banks' relative asset quality. This stress test will increase transparency across the industry," said Javier Garcia, a partner at consultants Oliver Wyman.The European Central Bank said the stress test results showed that the euro area banking system is resilient when faced with a challenging macroeconomic scenario.
More domestic focused banks suffered bigger hits to capital in the test compared with their cross-border peers.
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