American Financial Markets Soothed by Italians

Joel Anderson  |

The Italian Senate provided markets with much-needed relief after passing the austerity reform required by the EU bailout package by a vote of today, prompting a buying spree on markets around the world and benefitting financial institutions big and small.

Respected Economist Mario Monti, widely held to be the man who will be appointed interim Prime Minister by Italian President Giorgio Napolitano, made a visit to the Senate Chamber and was welcomed with applause before the body passed the bill by a vote of 156-12. The bill now passes to the Chamber of Deputies, Italy's lower house, which is expected to vote on it by Saturday. A meeting of the Italian cabinet is scheduled for after the vote, prompting speculation that embattled Prime Minister Silvio Berlusconi, who has promised to step down after the bill is passed, will tender his resignation as soon as Saturday night. The news comes as Greece swore in Lucas Papademos as the head of Greece's new Unity Government, acting to further help beat back fears of chaos in the Euro Zone.

American markets responded positively to the news of the austerity bill, with the Dow Jones, S & P, and NASDAQ all posing gains of over 2 percent in early trading. The up day caps off a wild three days of trading after fears over soaring yields on Italian bonds sent markets into a free fall Wednesday, with the three major indices all dropping over 3 percent. Thursday and Friday brought good news from Europe, though, and calmed fears, leaving the Dow and S&P up for the week with the NASDAQ down less than a half percent.

Some of the day's biggest gainers were American financial institutions as news of potential solutions to the European debt crisis led to major American banks, many of whom have substantial holdings of Euopean bonds, posting solid gains. This comes as welcome news to the institutions, which have taken a beating over the course of the year because of a stagnate American economy and the swirl threats of chaos in Europe. Bank of America (BAC) has seen shares take a beating this year, combining the European debt crisis with a public reversal on their debit card fees, with shares losing nearly 60 percent off their 52 week high from January. This is mirrored across the entire sector as major American banking insititutions have all lost serious value off their peak value early in the year. The Bank of New York Mellon Corporation (BK) has lost 33 percent on the year,  Morgan Stanley (MS) is down almost 48 percent from its yearly highs, and Citigroup (C) remains off 43 percent since January. Friday's good news, though, helped each bank make at least some bounce back from their long down trends in early trading as Bank of America was up nearly 4 percent, Morgan Stanley gained over 2.5 percent, Mellon jumped over 4 percent, and Citigroup is up over 2.75 percent.

Also making big gains today in the financial sector was Kohlberg Kravis Roberts & Co. (KKR), an asset management company that jumped over 5.5 percent.

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