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Although European shares have slightly recovered from a drop following the result of the Italian referendum before declining back again in less than twelve hours after the vote, shares of Italian banks are posting bigger losses on Italian Prime Minister Matteo Renzi’s defeat on the referendum.

Italian banks such as the Banca Monte dei Paschi di Siena faced threats of plunging shares after the Italian voting public chose to remain with their current government and refused to accept changes in their constitution. This led the Italian government to face a crisis in spite of the efforts from investors to recapitalize banks in the country. Italy’s largest bank Unicredit also dropped down by almost 5.5%.

The increasing investor concerns regarding the chances of Italian banks recovering from heavy debt levels have led shares to drop to as much as 8% with one of the most troubled banks Monte dei Paschi plummeting to as much as 10% during Monday’s early trading before closing at around 4% lower at the end of the day.

Other Italian banks also posted lower shares such as the Banco Popolare Societa Cooperativa dropping 7% lower at the end of the trading session Monday while the Banca Popolare di Milano declining by 8% following a majority vote against the referendum raising uncertainty to what help would come to the side of the struggling Italian banks who are in need refinancing or recapitalization.

Aside from the decline in European shares and Italian financial firms, the euro also experienced a decline shortly after the news of the Italian referendum defeat and Italian prime minister Matteo Renzi’s resignation although it has been noted that the drop eventually recovered recording the highest price against the greenback since last month.

Analysts Forecast

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Currently, both investors and banks are shaken over the recent turn of events as the economy is in the middle of a recovery process which is constantly being interrupted by a number of political and economic events one of which recently was the referendum defeat.

Although the main cause of crisis within the banking sector is seen by many to be the increasingly heavy debt levels of the banks. Factors such as these issues and the recent result of the referendum adds to the current problems faced by the banking sector in the country. City Index Direct research director Kathleen Brooks have stated that at the moment, markets are currently taking caution but is not in a panic mode.

Some investors are also not in a panic right now due to the markets getting used to the potential and possible effects of each and every political and economic event and changes one example of which was the short-lived negative impact of the recent British exit and the effect of the results of the recent U.S. Presidential Elections. The Banca Monte Dei Paschi Di Siena bank has just recently been reported to have been told to brace themselves for a bailout as a 5 billion-euro capitalization for the bank is currently at risk since a new administration offers no certainty regarding the recent plan to recapitalise the bank. The current amount of debt the Italian banks currently holds posts a risk which was made worse by the recent events so to say the bank’s failure will lead to a bigger crisis than what they are facing at the moment.

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