Italian bank shares are down 56% this year.
Monte dei Paschi is the poster child of bad performance hitting record lows after the ECB told the bank to shed more assets.
The Financial Times reports Bad-Debt Warning Triggers Fresh Fears for Italian Banks.
The world’s oldest bank, which has been cleaned up twice by Italian authorities, has been told by the European Central Bank it needs to shed another €10bn in bad loans, sparking fresh worries over the health of the troubled Italian banking sector.
Shares in Monte dei Paschi di Siena, founded in 1472 and Italy’s third-largest lender, dropped 13 per cent on Monday to an all-time low after it disclosed the ECB warning, dragging down all of the country’s largest lenders.
The FTSE Italia All-Share Banks index was down 3.7 per cent. It has lost nearly 56 per cent of its value this year. All told, the sector is weighed down by about €360bn in non-performing loans, by far the largest in the eurozone.
Monte dei Paschi also faces stress-test results due to be published at the end of July, according to senior bankers.
Monte dei Paschi said the ECB had demanded that gross non-performing loans be cut from €46.9bn at the end of 2015 to €38.9bn at the end of 2017 and €32.6bn by the end of 2018.
On a net level, the draft letter from the ECB said non-performing loans needed to be reduced from €24.4bn in 2015 to €18.4bn in 2017 and €14.6bn by 2018.
Non-Performing Loans – How Big Are they?
On April 12, I reported Italy Concocts €5 Billion “Atlas” Rescue Fund to Cure €360 Billion in Non-Performing Loans; At Gunpoint
On June 30, in Italy’s Zombie Banks on Death Bed, Bail-Ins Coming? I quoted the Financial Times on €200 billion in nonperforming loans.
“Concerns are focused on the banking sector’s €200bn of gross non performing loans, known as ‘sofferenze’, of which about €85bn have not yet been written down.”
Now the Financial Times once again says €360 billion. Is the problem €200 billion or €360 billion? Or is it even more?
Earlier today I commented on a Merkel-Renzi Showdown in which Italy threatens to defy Merkel and Brussels over bank bailouts.
Clearly the ECB is in the the picture as well.
Italian banks are insolvent. When does this admission see the light of day, and via what mechanism?
Mike “Mish” Shedlock
Leave it to the Italians… they will find a way.
The whole story of the financial crisis has always been to avoid having any entity, government, fund, corporation (or whatever…) be openly SEEN as having gone incontrovertibly and undeniably bankrupt.
Extend-and-pretend. Prop up those asset prices! And the horrible, terrifying truth is that, unless they do just that, the savings, retirement “investments”, stocks, bonds and other popularly-held “assets” of the common people will revert towards their intrinsic value. (Witness the tribulations of recent Greek governments…no matter the political party, they all have to comply).
I don’t think any politician will tell people the awful truth.
“Italian banks are insolvent. When does this admission see the light of day, and via what mechanism?”
When savers are “bailed-in,” and deposits metamorphose into worthless bank equity or junior bonds. An admission without a solution is meaningless.
So what Osborne is now doing in Britain is in fact the correct response…namely “mark to mythology”. Might sound wrong but the only way a Bank can become solvent again is through LENDING so taxes must be cut, deficit targets thrown overboard and Banks allowed to lend freely into the downturn. This is also a case study in why The Rest of Europe™ does not work. They want Bailouts but they get “bail it’s” meaning anyone who has over 100,000 euro in a Bank now literally HAS nothing. Which BEGS the question…what does the State now have when the Banks have nothing? The answer to me is “not a State.” No border control, no law and order, no Army, no Navy,….NOTHING. So since these aren’t stupid people the Smart Folk are teaming up with NATO right now as would appear “that’s your State.” The “European Union” is offering nothing to its Member States right now other than insolvency without security….not a club I would want to be a Member of and nor is Great Britain anymore. Ad lest we forget…there is a War with Russia going on ver there as well…one all of Europe has signed off on I might add.
Now back to the Juno Mission everybody!
If they attempt to “bail-In” depositors at a high-profile bank the size of Monte dei Paschi, it will trigger “The Mother of All Bank Runs” across the entire Italian banking system.
Rest assured, they will try every trick in the book first – including “Magical Accounting” and a government bail-out, no matter what Merckel says.
Other possibility is that Germany realizes EU is unmanageable and would be happy to come out of it without obvious blame ( Brexit, southern bank collapse etc.)… at the end of the day EU, and the Euro more specifically , might be understood as no more than the celebration of a fully sanctioned pillage between nations. That would gain it the title of one of the world’s greatest frauds, built on previous sacrifice for a public who naively believe it to be the meaning of peace.
Ron J said:
“If they attempt to “bail-In” depositors at a high-profile bank the size of Monte dei Paschi, it will trigger “The Mother of All Bank Runs” across the entire Italian banking system.”
Al Tinfoil said:
I suggest a simple and elegant solution: Redefine “Non-Performing Loans” as “zero interest rate loans requiring no payments on principal until maturity” and make these loans “renewable” to allow the debtor to simply roll over the due dates whenever the loans approach “maturity”. The due dates are thus made perpetually renewable to infinity, and default will never occur. This approach seems consistent with Modern Monetary Theory, Zirp, Nirp, and Extend and Pretend – it merely takes “Extend” to unlimited lengths of time. This could also prove to be better than NIRP, since the creditor would never have to pay the debtor for the pleasure of having lent money at negative interest rates.
Or, “mutualize” the NPLs to stand as security for a new “Asset Back Security” fund, issue AAA-rated bonds against the fund, and sell “Interest rate swap” insurance against default. Part of the premiums on the insurance could be recycled into coupon payments on the bonds, so the suckers who bought into this could be lead to believe that they were gaining a return on the bonds.
Surely some PhD economists can be found to embrace these ideas.
North American Cankled Hildabeast said:
Al, that is absolutely hilarious and too close to what is actually taking place.
We already have that. This is why the Banks are failing…pretty much everywhere…there is no carry in the yield curve and to the extent there is some growth (IS energy boom) it’s insufficient to create profits for Banks and worse still there is a refinancing possibility whereby Banks start being forced to roll over debts at lower rates.
In other words Government itself starts collapsing as “Banking” has to be moved over to the liability ledger of the Government Accounting folks.
People will buy “negative rates” until they won’t…and once the defaults start rolling in folks will…and in fact are…rightly fearing a hyperinflation and moving into hard assets…particularly silver.
Meanwhile, across the Channel from Europe,UK Property trusts are suspending redemptions. Aviva became the second in two days,according to the Guardian, to suspend redemptions due to “extraordinary market conditions”.
Guardian: “M&G, the fund management arm of insurer Prudential, suspended its £4.4bn fund on Tuesday afternoon, citing an increase in redemptions since the referendum” UK trying to be ahead of the Italians.