Germany's DAX performance index hit a 52-week high Wednesday as bank shares surged on reports of a government-led rescue of failing Italian lender Banca Monte dei Paschi di Sienna (BMDPY)
The equity benchmark touched 10,925 points in the first hour of trading in Frankfurt, led by a 4.5% gain for Deutsche Bank (DB - Get Report) , which traded at €17.21 each, the highest since April 29. Rival Commerzbank (CRZBY) also added to session gains, rising 3.4% to €7.25, taking the two-day advance past 10%.
The Stoxx 600 Banks Index, the broadest measure of European banks shares, was quoted 1.9% higher at 169.24 at 10:20 GMT, the highest since January 13.
Italy's La Stampa newspaper reported Wednesday that the government was planning to ask the European Stability Mechanism, the region's permanent bailout fund, for a €15 billion ($16.1 billion) loan that would be used to effectively nationalize Banca Monte dei Paschi.
The speculation helped lift Italian bank shares, which have been suffering from investor concern over the state of their balance sheets, which recent Bank of Italy data suggests could be as high as €360 billion.
Italy's FTSE MIB index, the country's equity benchmark, traded 1.2% higher Wednesday, led by a 2.4% gains for the FTSE Italy Banks Index.
German lenders have some of the biggest exposures to Italian banks and businesses in Europe. Recent data from the Bank for International Settlements, the so-called central bank for central banks, indicates that Europe's biggest economy has around $93 billion in Italy-linked exposures.
Deutsche Bank's most recent annual report, covering 2015, states that it's "financial institutions exposure is predominantly geared towards larger banks in Spain and Italy, typically collateralised. Sovereign exposure is at what we view as a manageable level."
Of the bank's reported €26,164 billion next credit risk exposure, more than half (€13.269 billion) relates to Italy, which Deutsche describes as "principally to highly diversified, low risk retail portfolios and small and medium enterprises in Italy and Spain, as well as stronger corporate and diversified mid-cap clients."