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« The biggest gold heist of all time | Main | Deutsche Bank to pay $60 million to settle US gold price-fixing case »
Sunday
Dec042016

All Eyes On Monte Paschi, Whose Bailout Is Now In Doubt, And Italian Bank Sector Contagion

As we noted last night, when we previewed the virtually assured "No" vote, we said that "a strong “No” vote will cause Prime Minister Renzi to resign, leading to political instability in Italy. Furthermore, a "No" vote is expected to kill a long-running attempt to rescue Italy's third largest and oldest bank, Monte dei Paschi, which has been desperate for a private sector bailout ever since it failed this summer's ECB stress test to avoid broader banking sector contagion; a failure of Monte Paschi will likely spark a fresh eurozone banking crisis, and prompt the ECB to get involved again (as it warned it would do), in a redux of what happened after the Brexit vote."

Sure enough, as the WSJ wrote moments ago, "when markets open Monday morning, all eyes will be on Banca Monte dei Paschi di Siena, Italy's troubled No. 3 lender, which is considered particularly vulnerable to fallout from a 'no' vote, which could complicate its plans to raise capital. Investors will be watching closely for any signs of a run on the bank, a situation that could force the government to move quickly with emergency measures."

For those who have not been following the seeming endless bailout saga, and growing crisis, at Italy's third largest - and most insolvent - bank, here is the quick rundown:

  • 2007:  Monte dei Paschi buys Banca Antonveneta for EUR9.3 Billion
  • 2011:  European stress test finds the bank has a capital hole of EUR3.3 billion
  • 2012:  MPS's chairman and top management are replaced
  • 2013:  The lender borrows EUR4 billion from the government to stay afloat
  • June 2014: MPS raises EUR5 billion in fresh capital and pays back EUR3 billion of the government loan
  • Nov. 2014:  New stress tests find the bank the worst capitalized lender in Europe. The ECB takes over as its supervisor. The bank is officially declared up for sale
  • 2015:  MPS raises EUR3 billion in fresh capital and pays back the rest of the government loan
  • 2016:  Announces plan to raise EUR5 billion and sell EUR28 billion in bad loans

Moments ago, the FT reported what we said yesterday in an article according to which the "rescue for the world’s oldest surviving bank Monte dei Paschi di Siena has been thrown into doubt after reformist prime minister Matteo Renzi decisively lost a referendum on constitutional reform on Sunday."

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