Less than two weeks ahead of a pivotal referendum on constitutional reform in Italy, brokers are becoming bullish on the nation's largest lender, UniCredit (UNCFF) , touting a better-than-expected repair of its capital buffers as a key reason behind why there could be as much as 50% upside to the stock.

But life in the Italian banking sector remains a tale of two cities, with analysts remaining downbeat on the beleaguered Monte dei Paschi (BMDPF) as the world's oldest bank seeks to tie up its latest rescue, which will likely see it raise more than five times its market capitalization in new equity.

Matters are further complicated for all Italian institutions by the looming referendum on constitutional reform, which could see the government fall apart at the seams should Prime Minister Matteo Renzi fail to secure enough support for his reforms.

Such an outcome would certainly lead the market to question the long term future of the Italian economy, while it could also give rise to the possibility that the government falls and is replaced by one less sympathetic to the European Union in a general election. 

UniCredit has previously flagged the referendum as a key risk to its plans, according to press reports, saying that some key decisions would be deferred until its investor day on December 13 - which takes place after the Italian plebiscite on December 4. 

Analysts at Jefferies raised their price target for UniCredit stock Monday to €3.0 per share, betting on a favorable outcome for the bank either way, and hgihlighting the potential for as much as 50% upside from current levels.

"A well-capitalised, clean bank with ROTE >7% ... would justify 50% upside to current valuation, in our view," Jefferies analyst Benji Creelan-Sandford said a client note Monday. 

Investors have long favored UniCredit over other Italian lenders but, at the crux of increasingly bullish sentiment in November has been the bank's a ruthless approach to capital raising during recent months. UniCredit has shed assets amid market speculation of a mammoth rights issue announcement at the bank's investor day on December 13.

Perversely, the degree to which bad loans have eaten into the balance sheets and capital buffers of Italian banks now means that announcing a bumper rights issue and then pulling it off can actually be seen as positive development by stockholders.

Creelan-Sandford at Jefferies predicts that UniCredit will announce that it intends to raise €11 billion ($11.7 billion) of new equity to boost provisions against bad loans, alongside capital generated from more asset sales.

Disposals to date recently helped the bank report a CET1 capital ratio of 10.82 - 50 basis points above market expectations.

UniCredit could still net another €6 billion from asset sales over the coming months, by selling its remaining stakes in Polish lender Bank Pekao and asset manager Pioneer.

"The upfront clean-up brings dilution (P/TNAV would move to 0.4x), but would deliver stronger re-rating potential," Creelan-Sandford explained.

UniCredit stock rose 0.8% to €1.99 Monday in Milan, but have fallen around 60% so far this year.

But not all Italian banks are born equal, as can be seen by the fall from grace of Monte dei Paschi.

The Tuscan lender is hoping to tie-up what will be its fourth capital raising since the beginning of 2012, which will likely see the bulk of its existing investors diluted out of existence, given plans to raise €5 billion of new equity. The bank currently has a market capitalization that is less than €800 million.

Eoin Mullaney at Berenberg predicted in October that the bank would face an uphill struggle to raise capital from investors given its current financial situation.

They add, on the subject of its longer term future; "Monte Paschi's new business plan mirrors old ones in that it relies on growth to achieve its targets... We cannot see it achieving all three objectives, given the headwinds it faces particularly on the revenue front."

Monte dei Paschi shareholders will vote on whether to back the latest rescue plan on Nov. 24. 

Berenberg currently rates Monte dei Paschi as a sell, with a price target of €0.15, which implies downside of 35% from Monday's €0.23 level.