This past month, the world’s oldest bank, Monte dei Paschi, struggled then failed to raise €5 billion capital. That failure triggered a €20 billion recapitalization effort by the Italian government.
Already we learn Monte dei Paschi Shortfall Hits €8.8 Billion.
The European Central Bank has said that Monte dei Paschi di Siena’s capital shortfall has risen to €8.8bn from €5bn, significantly increasing the price tag of the rescue of Italy’s third-largest lender by the government.
In a statement released late on Monday, MPS also revealed that the ECB had warned that the bank’s liquidity had suffered a “rapid deterioration” over the past month, as it tried in vain to muster enough cash from private investors to avoid a state bailout.
On Monday, the ECB sent a letter to the Italian finance ministry to inform it that MPS’s capital shortfall was now €8.8bn, compared to the €5bn it was estimated to need in the aftermath of July’s Europe-wide banking stress tests.
The worsening capital and liquidity position at MPS marks a new twist in a long-running saga surrounding the fate of world’s oldest bank, which has arguably emerged as the weakest link in the Italian and European banking system.
Rome will not have to cover the entire capital shortfall, since more than €2bn of the funds are expected to come from a haircut to institutional holders of junior debt in MPS under new EU rules on “burden sharing” in bank bailouts.
But the higher price tag for MPS will potentially give it less leeway to cover possible rescues of other smaller regional Italian banks which have been suffering from similar problems, even though Italian officials have insisted that there is ample room in the €20bn already approved.
Only the Beginning
On December 21 I wrote Bail-In Coming for 40,000 Junior Bondholders of Monte dei Paschi: Expect More Bank Bail-Ins
Italy approved a €20 billion bank bailout. Goldman estimates €38 billion is needed.
Given there is something on the order of €260 billion in nonperforming loans, I speculate €120 billion or more may be needed. One thing is sure: €20 billion is not nearly enough to close the gap.
Here’s the question that needs to be addressed: Realistically, what are those non-performing loans worth on the open market?
Taxpayers and junior bondholders are on the hook. This begs the question: why are not senior bondholders on the hook before taxpayers?
Regardless, this bailout/bail-in is guaranteed to help Beppe Grillo and his band of eurosceptics.
Pretending Continues
It’s ridiculous to pretend €20 billion can cover hundreds of billions of euros of nonperforming loans.
Italy could not even get through the month of December without shortfalls becoming greater than expected.
Mike “Mish” Shedlock
Gross NPL is officially € 360 bn. MdP has € 45 bn of these. Market value may be 50% if possible to sell. So MdP needs more than € 20 bn. And the other banks € 150 bn?
Italy is on its way down,not up so NPLs will increase.
So probable solution short term is not state aid but capital control. Lock in the depositors to save time.
What do the Austrian economists make of all this deficit spending in the EU and the USA?
It has been going on for 60 years. The governments just move the debt from old books to new books. The debt gets bigger over time but it is still easy to move from old books to new books.
This whole issue is like a long bad movie…..
What do the Austrian economists make of all this deficit spending in the EU and the USA?
It has been going on for 60 years. The governments just move the debt from old books to new books. The debt gets bigger over time but it is still easy to move from old books to new books.
No shortage of spending in Italy currently. Am there currently and it is busy in all shops, roads.
Fish, gifts are traditionally exchanged at the Epiphany in Italy, courtesy of La Befana, in Spain similar but by The Three Kings. Should be busy.
Don’t let me dampen the mood as it is not about how much is spent really, and the atmosphere is what it is, but Italian sales this year are said to decline some
http://www.thelocal.it/20161223/this-is-how-much-italians-spend-on-christmas
http://exurbe.com/wp-content/uploads/2011/12/befana.jpg
Food shopping active. Lots of cash changing hands, not presents.
Thanks. I always hold that many southern economies can get by at a fraction of current gdp. Italy has low private debt, others still know how to, and do, subsist on very little even though much financed as a ‘luxury’. Most southern wealth was something of a one off windfall after joining Euro, not sure that they will really adapt into northern everyday household financial routine as a way of life, not the discipline or mentality or surrounding infrastructure/stability for that, generally family provide the backup. Sort of where the battle lines are drawn in a way, with many 25-40 on the hook and youth no path watching over 40 comparatively secure, wondering what it means for them.
“There’s never just one cockroach” is my favorite wall st saying. “There’s never just one shortfall” isn’t as catchy but it applies to all Club Med banks etc. More shoes will drop. (I like that too)
I think you will find most of the senior bondholders are the French, Germans, and the ECB.
I could be wrong of course and it could be all the ECB. A lot of shenanigans going on in Europe with the ECB. Screw the people and bail out banks again, I would have bailed years ago and bought PM’s or something tangible.
A lot of the Sr bank bonds would have been held by Retail investors in various funds across Europe, including Italy. If you have access to a Bloomberg account it’ll tell you exactly who holds the bulk of them now … when there’s stress around, hot money tends to get involved as well.
“why are not senior bondholders on the hook”
An excellent question.
Is it even possible to know who the senior bondholders are? As knowing that, the answer would be obvious. Meet the banks new owners and the beneficiaries of the bail-ins. A perfect public service assignment for WikiLeaks.
With Merkel as Empress of the EU, the logical beneficiaries should include Deutsche Bank and German interests. Or perhaps the ruling EU Mafia, not necessarily Italian.
“why are not senior bondholders on the hook”
Because their children go to school with those who draw up the bailout plans, and that would be uncomfortable for them.
Spot on. A while back it was suggested (sorry I don’t have the reference) that no failures were to be allowed until cross border entanglements were reduced. The reason was German and French banks were on the hook so cross holdings were to be reduced as one domino would otherwise take others down.
When cross holdings are reduced to some level it is a logical conclusion that some collapses can be allowed.
Deutsche Bank just given OK to issue bonuses. ECB say OK as they meet target liquidity measures. Germans will be protected at all costs.
I don’t see how Deutsche Bank stays out of the toilet. “Meeting liquidity targets” probably does not include $7 billion in Tribute to be paid USA.gov for their role in the USA fraudulent mortgage crisis. Those evil German banks meddling in USA financial affairs, and a bonus to boot. But I can understand, you have to get the bonus loot before the ship goes down (in a different financial year). But am not sure how you reduce the interconnectedness, as someone has to “go down for the count” when the music stops.
Well it’s surely your fault Monti is going under. The little people(and big ones too) are pulling savings out of the Monti while they can…based, in part, on your advice from some time back 🙂
My comment was aimed at Mish 🙂
I, for one, had no idea the crooks at the ECB could count or understand accounting ledgers… have they looked at their own accounts? ECB has a rather large shortfall, and Merkel can’t cover it.
Bankers continue to take outlandish risks with other people’s money, and then demand bailouts.
Not much longer.
As soon as strategically imporant banks are ring fenced and no on the hook the others will be let go.
Not long now.
What about Italy’s Deutsche Bank equivalent called UniCredit. It might be on the verge of collapse too? Frontpages and blogs are not even mentioning this badly performing lender. But it could be next bail-out/bail-in candidate. Will Draghi save his compatriots of UC with QE and NIRP policy? Next year we will learn more.
What do the Austrian economists make of all this deficit spending in the EU and the USA?
It has been going on for 60 years. The governments just move the debt from old books to new books. The debt gets bigger over time but it is still easy to move from old books to new books.