Search This Blog

Sunday, 4 December 2016

Italian Banks on the Brink

Daily Reckoning

[Ed. Note: Jim Rickards latest New York Times best seller, The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis (claim your free copy here) goes beyond the election and prepares you for the next crisis]

There’s an old saying: “What’s sauce for the goose is sauce for the gander.” The meaning is obvious — if you insist on something for others, you have to be prepared to hold yourself to the same standard.

A version of that is playing out in Europe today. And right now the strongest signal is not coming from Germany — it’s coming from Italy. Italian banks are in deep financial distress (as were banks in Cyprus and Greece from 2011 to 2015). This involves the Banca Monte dei Paschi di Sienna (BMP), the world’s oldest bank still in operation, founded in 1472.

Monte Paschi’s trouble began in 2007 when it agreed to buy another Italian-based bank, Banca Antonveneta SpA. It offered 9 billion euros in an all-cash deal just as the global financial crisis was unfolding. The deal proved a disaster for Monte Paschi. It damaged its ability to withstand losses following the 2008 crisis.

Then investment bankers stepped in and sold Monte Paschi derivatives contracts that ended up hiding the bank’s surging losses from regulators. These deals only weakened the bank’s shaky finances.

BMP’s derivatives blew up because they made losing bets on the value of Italy’s country’s government bonds. The bank has suffered 15 billion euros in losses since 2009 and seen its stock fall 99%.

BMP was the only major bank to fail the European Central Bank’s (ECB) recent stress tests. It was required to raise capital as a result. The efforts to raise capital have been led by JP Morgan and a syndicate including Goldman Sachs and some Chinese banks. JP Morgan won out over a rival plan by veteran Italian banker Corrado Passera.

The plan called for selling about 28 billion euros ($31 billion) in bad loans and raising 5 billion euros in new capital. But reports suggest that the capital raising effort has not gone according to plan.

Read more 

No comments:

Related Posts Plugin for WordPress, Blogger...