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Italy Unveils Most Bizarre Bank Bailout Yet

Tyler Durden's picture




 

The biggest problem facing European banks - one we highlighted most recently yesterday when we showed the latest 20% surge in Spanish Banco Popular Non-Performing Loans to a fresh record - and one we have been covering since 2010, which as of 2012 amounted to some $4.5 trillion that needs to be "remedied" - is the staggering amount of bad debt on the books of Europe's numerous banks, the bulk of which especially in the periphery are cojoined with their sovereign host in an unbreakable bond which despite Europe's theatrical attempts to sever, only keeps getting stronger.

But while, so far at least, the conventional "under the table" can-kicking European bailout mechanism involved a process whereby banks would issue bonds with a sovereign "guarantee", then promptly repo them to the ECB at virtually no haircut as the Goldman alum-led central bank did everything in its power to keep injecting liquidity in an insolvent continental banking system (while everyone pretended to not realize what was going on as the "A-ha" moment of public epiphany would mean the emperor would suddenly have no clothes and the jig was up), this week things changed.

On Wednesday, Italy's government voted final approval to a decree hiking the value of Bank of Italy's share capital from €156K to €7.5 billion - something that had not been done since the 1930s. Of course, politicians determining the fictitious value of a central bank is one thing, as idiotic as it may be. However, what is truly preposterous is the covert bailout that accompanies the decree: a key part of the decision was setting a 3% ceiling on the stake that the bank's shareholders can own in the central bank. This means, as Reuters reports, that Intessa and UniCredit, currently the central bank's largest shareholders with stakes of 42 percent and 22 percent respectively - not to mention two of Italy's most NPL-heavy banks - will have to sell the bulk of their central bank "equity" stakes. And who will they sell them to? Why the central bank itself, and in return they will pocket up to €3.5 billion ($4.7 billion) from the sale of their central bank holdings. Said otherwise, Italy took not only bizarro accounting, but also monetary financing of insolvent banks by the monetary authority, and thus Italy's taxpayers, to the truly next level.

Some more details on this supremely grotesque, and certainly not last, bailout from Reuters:

The decree says the banks have three years to comply with the new rules.

 

Should Intesa Sanpaolo sell a 39 percent stake, it could cash in up to 2.3 billion euros before tax according to analysts' calculations based on the new share capital of the Bank of Italy.

 

UniCredit could pocket a gross capital gain of around 1.15 billion euros from the disposal of its 19 percent stake in the central bank.

 

The only other lender with a stake in the central bank exceeding 3 percent is Carige which stands to reap a capital gain of 73 million euros if it sold part of its holding to comply with the decree.

And the cherry on top, confirming that Basel III is the biggest regulatory supervision joke conceived in Basel whose only purpose is to perpetuate a system of insolvent banks no matter the taxpayer cost, is that the capital gains from the sale would be used to boost the banks' core capital.

For those asking - yes: Italy's central bank just made sure Intessa and UniCredit pass Europe's stress test with flying color courtesy of a direct $4.7 billion deposit.

Sadly, this most brazen bailout will only benefit the abovementioned two banks:  "The ownership limit will benefit only Intesa Sanpaolo and UniCredit," said Fabrizio Bernardi, analyst at Fidentiis Equities. "It will not help, however, Monte dei Paschi di Siena and Banca Carige, which are desperate for capital," he added. Monte dei Paschi has to raise 3 billion euros later this year to pay back state aid, while Carige needs to boost its capital by 800 million euros.

That's ok, we are sure the MIT diaspora of brilliant bankers who rule the world (literally) will come up with some another ingenious plan to mask the epic insolvency of Monte Paschi in the 11th hour, kicking the can for another several months, until the next leg lower in the European depression forces Europe's banks to get yet another bailout, and so on, until one day there are no more people left to fool.

Perhaps the piece de resistance is that not only is the central bank bailing out insolvent banks, but it is indirectly also funding the sovereign: the new law will also help public finances thanks to the taxation of the capital gain the banks will register.

Simply remarkable.

And it would have been even more unbelievable had nobody in Italy's parliament figured out this was simply yet another taxpayer funded gift to Italy's banks. Somebody, however, did. Guardian reports that late on Wednesday, MPs of Beppe Grillo's M5S "stormed the government benches, put on symbolic gags and kept up a barrage of whistling after the speaker, Laura Boldrini, cut short the debate and ordered a vote on a complicated and intensely controversial measure to square Italy's public accounts. One of Grillo's followers said an MP from the governing majority had slapped her during the disorder. Opposition MPs claim that the measure would hand more than €7bn (£5.8bn) of taxpayers' money to the banks." Of course, what better way to fast-track yet another taxpayer bailout than to cut any debate short.

And this being Italy, where the phrase "political circus" is redundant, things just went uphill from here:

Members of the far-right opposition Brothers of Italy party showered chocolate coins on the government's representatives in the chamber and unfurled an Italian flag. After the vote was taken, Boldrini's party colleagues in the radical Left Ecology and Freedom (SEL) party broke into a chorus of the old partisan song Bella Ciao, prompting the M5S to respond with a rendition of the national anthem.

 

 

It is the first time since the foundation of the Italian republic after the second world war that a speaker has used the power to cut short a debate in this way. If she had not intervened, the decree at the centre of the dispute would have lapsed at midnight and Italian homeowners would have been landed with a bill for €2.2bn.

 

Enrico Letta's left-right coalition government won the vote by 236 to 209.

 

The decree was the latest stage in the government's tortuous efforts to fulfil an election pledge by Silvio Berlusconi to scrap an unpopular tax on first homes – and to do so without increasing Italy's already vast, €2tn public debt. Part of the cost is being passed to banks. 

 

But the decree included provisions for an increase in the capital of Italy's central bank – a move that will swell the balance sheets of the commercial banks that are shareholders in the Bank of Italy.

 

Since the central bank is to use its statutory reserves for the increase, the M5S argued that it amounted to a gift of more than €7bn to the banks.

And they were right. But that's ok - at least everyone get's to pretend for a few months longer that the system, which now needs ever more creative bailouts, is solvent.

 

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Sat, 02/01/2014 - 12:22 | 4391281 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Isn't this like passing the same IOU between 2 parties back and forth?

 

Why doesn't the Central Bank just forgive the debt if it is owed to them then?

I think I know why that might set a bad precedent and empower others stuck under odious debt to demand forgiveness.

Sat, 02/01/2014 - 12:28 | 4391300 Deo vindice
Deo vindice's picture

For us little people, it would be called kiting. And it is a crime.

These guys just do it on a massive scale and call it something else.

Sat, 02/01/2014 - 12:48 | 4391322 Dewey Cheatum Howe
Dewey Cheatum Howe's picture

Normally I'd agree with you but the dirty little secret is in these credit/debit monetary systems that supposedly are fiducary well there are 2 main underlying collateral assets to them to cover the paper, one is gold as reserves in the Central Banks (though they will not admit it), the other is the citizens themselves. Your labor is money that backs it at the end of the day and they spend you like collateral to keep extending the credit without you having a say in the process as long as you keep supporting these systems. It is involuntary servitude when you get right down to it as opposed to a fair contract with both parties voluntarily agreeing to terms and conditions. The third party in this credit menage a trois is the Italian government providing the collateral aka the Italian taxpayers (all 5 of them *snicker*).

Sat, 02/01/2014 - 12:58 | 4391361 kliguy38
kliguy38's picture

How much chit has to hit the fan before even the dumbest of the sheep figures out they're screwed

Sat, 02/01/2014 - 16:17 | 4391706 KickIce
KickIce's picture

Woo hoo the Super Bowl is on this weekend, livin' large my friend.

Sat, 02/01/2014 - 16:21 | 4391710 Arius
Arius's picture

thats Italy for you!  it is all mafia over there ...

Any bets on the Superbowl?

Sat, 02/01/2014 - 21:51 | 4391957 tony wilson
tony wilson's picture

as long as they keep sprayin the killer dumbing down chemtrail juice of various toxic metals.

as long as the mind control box has tv soaps and talent shows as long as something is left to extract and steal.

it will go on.

then rothschild wars kick in so the yahudi man boss men can blame the arabs all over again.

Sat, 02/01/2014 - 14:18 | 4391484 ebworthen
ebworthen's picture

Yes, that is why the Spanish soccer team refusing to play was so great. 

More of that.

Sat, 02/01/2014 - 14:24 | 4391499 KickIce
KickIce's picture

They probably got rid of their gold which translates to less carrying costs and thus justifies an incease in stock prices.

Sat, 02/01/2014 - 12:45 | 4391327 unununium
unununium's picture

Just money printing, pure and simple.  The CB doesn't even get bonds in return.

Sat, 02/01/2014 - 14:19 | 4391487 Spigot
Spigot's picture

In a legal sense they just booted the majority share holders who no longer can then sit in on board discussions, force/dictate terms, etc. IE - this really is about cutting off lines of control from external, extra national entities, not much about the "money", except as a pay off for their sign off on the change.

Sat, 02/01/2014 - 12:27 | 4391301 Atomizer
Atomizer's picture

The emerging markets are in full recovery mode.

/sarc

Sat, 02/01/2014 - 12:24 | 4391288 Greenskeeper_Carl
Greenskeeper_Carl's picture

"Most bizarre bank bailout yet"
YET being the key word. Just wait a couple more years. We ain't seen noting yet.

Sat, 02/01/2014 - 12:39 | 4391319 BandGap
BandGap's picture

The only reason they won the vote is that it was cut off.

There aren't a couple of years to go if this kind of shit is going on.

 

Sat, 02/01/2014 - 14:58 | 4391328 Urban Redneck
Urban Redneck's picture

Years? Try months, until these two zombie banks recycle their bailouts and miraculously bailout two other zombie banks...

Recycling is trendy in Europe and the garbage piles are particularly large in Italy.

Edit: and for those who missed the Italian animosity over Germans dumping their (non-paper) toxic and radioactive waste on Italy and the current Italian establishment's complicity...

http://www.spiegel.de/international/europe/anger-rises-in-italy-over-tox...

(Since the plagiarizing NY Times online didn't even cite the Spiegel article they basically copied)

Sat, 02/01/2014 - 12:27 | 4391297 Kirk2NCC1701
Kirk2NCC1701's picture

Don’t Sell Your Hair to a Wig Shop*

When you get slick advice, you lose money.  When you lose money, you get depressed.  When you get depressed, you go to Wall St. seminars.  When you go to seminars, you feel like a winner.  

When you feel like a winner, you go to a Wall St. Casino and lose your money.  When you lose your money, you end up selling your hair to a wig shop.

Don't sell your hair to a wig shop.  Upgrade to ZH-TV.

* DirecTV add   http://www.youtube.com/watch?v=KoG0O9xH6-U

Sat, 02/01/2014 - 12:55 | 4391357 TheGoldMyth
TheGoldMyth's picture

Device to prevent sell hair to wig shop.
"DES´S presents a traditional solution to a current problem, Caja de Ahorros MiColchón."
http://www.youtube.com/watch?v=92vp2fUqOPc

Sat, 02/01/2014 - 12:28 | 4391298 Deo vindice
Deo vindice's picture

.

Sat, 02/01/2014 - 12:28 | 4391299 shanearthur
shanearthur's picture

So Tyler, you hardly ever comment these days. Would you say the global ball of yarn is unraveling now? I'm thinking the powers that be are loosing their tight grip. Am I wrong?

Sat, 02/01/2014 - 12:31 | 4391305 Deo vindice
Deo vindice's picture

"I'm thinking the powers that be are loosing their tight grip."

They may be loosening their grip. Not sure if they are yet losing their tight grip, though.

Sat, 02/01/2014 - 12:30 | 4391306 BandGap
BandGap's picture

I like the fact that it was easy to figure out. The stealing is in broad daylight these days. Can't last much longer.

Sat, 02/01/2014 - 12:33 | 4391308 Kirk2NCC1701
Kirk2NCC1701's picture

Suggestion:  Go back to the Private Bank of 'Certa & Sealy'.

No haircuts, no fees.  Funds available 24/7/365.  Totally secure*.  Discrete bank... they won't rat you out to financial parasites.

*But be careful whom you let into the bank, as their intentions may be different that advertised.  ;-)  ;-)

Sat, 02/01/2014 - 12:32 | 4391309 Pairadimes
Pairadimes's picture

I hereby decree that I am worth 7.5 billion also. Nope, didn't work. Damn.

Sat, 02/01/2014 - 12:59 | 4391363 HardlyZero
HardlyZero's picture

Hire some top flight finance lawyers, they will fix that and probably get a town named after you.  Then they fund the town and you with it.  Put the town in your name.   Done.

Sat, 02/01/2014 - 12:34 | 4391310 Spastica Rex
Spastica Rex's picture

Italy has long produced some of the best performing gangsters.

Sat, 02/01/2014 - 13:16 | 4391379 Atomizer
Atomizer's picture

The Central Planning community has become the next shoe shine boy.

Thinking you’re a made individual to the institution and meeting your execution are a shaking nightly sleep for PR performance people who will pass away after the agenda is accomplished.  Sad but true.

Sat, 02/01/2014 - 17:49 | 4391879 messystateofaffairs
messystateofaffairs's picture

Nope, Israel has the best gangsters by far.

Sat, 02/01/2014 - 12:39 | 4391318 Atomizer
Atomizer's picture

I’m not Tyler. Here’s where we’re at for US scope.

 

  • Bankers saved, currency take nosedive. Good for gold
  • USD Currency saved, (4) major banks go under. Bad for gold

Derivative exposure with banks is 4 times the amount of GDP.

Sat, 02/01/2014 - 12:44 | 4391334 buzzsaw99
buzzsaw99's picture

Whatever, I Do What I Want!

http://www.youtube.com/watch?v=z0-KZS1dDyw

Sat, 02/01/2014 - 12:45 | 4391338 FieldingMellish
FieldingMellish's picture

They made the taxpayer an offer they couldn't refuse.

Sat, 02/01/2014 - 12:51 | 4391346 Sudden Debt
Sudden Debt's picture

Companies use this trick to prop up their assets for already a decade!
They buy a little company, sell the stocks to the mother company for 100 times the value and they also sell stocks from the mother company to the sister company for a raised prices to get the profits back out of the company.
They just switch te money but bookvalue of those shares is so high that their assets in the books are worth a shitload while there's nothing real in it.
And suddenly your 5 million euro company is "worth" 500 million and the value of the mother company goes up in the stockmarket.

It's a fraud but so common, people think it's normal.

It's still this kind of marketbubble that needs to pop and which has not been covered since it's use.

Sat, 02/01/2014 - 12:52 | 4391351 falak pema
falak pema's picture

There is something that escapes the financial analysis of the Tylers when they consider CB plays:

It works according to the principle of divine faith as pronounced by Thomas of Aquinas in his Summa Theologica :

"For those who believe in the Faith no explanation is necessary for those who be nonbelievers no explanation is sufficient."

The basic tenet of the apostolic Faith based on divine wisdom, beyond the grasp of "free thinking Aristotelian logic", is the underlying principle for defining CB plays today : "We can print to infinity and nobody can challenge us, even if we say the Earth is flat."

So the Tylers are warned, heretics always get burned in the fire of Inquisitorial ire if you challenge Divine CB preeminence.

Just be a believer and all ends well.. in the after life !

And for that we have the Vatican in Rome! (Not far from the CB, Banca d'Italia; palazzo KOCH, thus owned by you know who).

Sat, 02/01/2014 - 12:56 | 4391358 Spastica Rex
Spastica Rex's picture

Economics often functions as a secular stand-in for religion.

People pray to all kinds of peculiar things.

Sat, 02/01/2014 - 13:31 | 4391402 Pheonyte
Pheonyte's picture

Thomas Aquinas never said that. What he actually wrote was, "Unbelievers are in ignorance of things that are of faith, for neither do they see or know them in themselves, nor do they know them to be credible. The faithful, on the other hand, know them, not as by demonstration, but by the light of faith which makes them see that they ought to believe them" (Summa Theologiae IIa-IIae, q. 1, a. 5, ad. 1).

Sat, 02/01/2014 - 14:17 | 4391485 Spastica Rex
Spastica Rex's picture

Thomas Aquinas never wrote that. Thomas Aquinas wrote in Latin.

Sat, 02/01/2014 - 14:22 | 4391498 Pheonyte
Pheonyte's picture

How clever.

Sat, 02/01/2014 - 15:49 | 4391670 Spastica Rex
Spastica Rex's picture

I don't know much about Latin, as you can see from my pseudonym. Well, as long as you know something about Latin gender, you can.

You're not a Latin expert, either, I'm guessing. Translation is hard work.

Sat, 02/01/2014 - 16:21 | 4391715 Pheonyte
Pheonyte's picture

No, I'm not a Latin expert by any stretch, but I have studied it and did some translating in grad school. Aquinas's Latin is actually not all that difficult. It's the classical stuff with all its rhetorical gymnastics that gives me a headache.

Sat, 02/01/2014 - 14:49 | 4391546 ebworthen
ebworthen's picture

Or "kill them all, God will know his own":  http://en.wikipedia.org/wiki/Massacre_at_B%C3%A9ziers

Martin Luther rocked the boat, and then Joseph Smith and Mormonism (especially post Vatican II).

And then of course there is science, electricity, and crony capitalism/socialism which has nearly emptied the Catholic churches in Europe. Why look to God to survive winter and the next crop when it is on a shelf and in a government social welfare program?

No shortage of tyrants and political ideologies in the 20th century that laid waste to many an individual and family.

I find more solace in a belief in God versus atoms and a gaseous explosion; and without faith in a greater good beyond myself and humanity I see no reason not to murder someone for what I need.

Central Bankers could sell shoe leather as steak with a straight face.

Sat, 02/01/2014 - 12:57 | 4391354 highly debtful
highly debtful's picture

Been to northern Italy last summer. Verona is a lovely city.

Pity, really. 

Sat, 02/01/2014 - 13:01 | 4391359 ThroxxOfVron
ThroxxOfVron's picture

Central Bank Share buybacks...

Does the 7.5B Euros in 'reserves' even exist or is the Italian CB just inserting some accounting ledger entries?

Is it an unsterilized currency emission if the emitting CB buys it's own shares back with the money?

Are these Italian CB reserves FX reserves?  Euros or Dollars -or Gold?

Didn't Italy confiscate some US issued Bearer Bonds a few years ago is just about this amount?

 

Maybe Draghi should encourage the Central Banks of Europe to do a massive CB stock split, share revaluation, and buy back half the shares from the split with new account entries.

Problems solved!  ( ok, where's My MIT PhD and Goldman tie pin? ) 

Sat, 02/01/2014 - 13:24 | 4391388 TheGoldMyth
TheGoldMyth's picture

Your very apparent knowledge in the area of currency emissions prompts me to ask if you are also an economic climate scientist? In my own work in this area as a hobbyist/researcher i have been able to see a strong positive correlation between the sharp drop in the Baltic Dry Index and the sudden drop in temperatures in the US and europe that could be connected in turn to a lack of velocity in the currency emissions you have been observing.
Weak velocity, the recent drop in the Baltic Dry producing cold weather indicate to me that the CB's are probably buying their own shares back.
Good work!!

Sat, 02/01/2014 - 13:19 | 4391381 stock trout
stock trout's picture

Only bailout news I want to hear from Italy relates to Amanda Knox, with plenty of pics. 

Sat, 02/01/2014 - 13:33 | 4391410 Carl Popper
Carl Popper's picture

Wow.

 

The looting has reached ludicrous speed. 

Sat, 02/01/2014 - 16:26 | 4391720 jon dough
jon dough's picture

They've gone to plaid!

Sat, 02/01/2014 - 13:44 | 4391426 Inthemix96
Inthemix96's picture

Deo vindice pointed this out,

Just you or I try skirting this type of practice in YOUR business, its called kiting and would probably end you up in a shit ton of bother.

These fuckers have gone insane, bat-shit, criminally insane.  In broad daylight.

Fucking mind boggling what we allow the cuntish 'Government' cunts to get away with in our names.

????

Sat, 02/01/2014 - 13:46 | 4391432 Atomizer
Atomizer's picture

Dear William Dudley,

 

Why in the fuck should we listen to your advice? This interlinking of all global markets is going to blow up in your face. Just be aware, when you try to pull that bullshit off. Your bank accounts will be seized or hacked. Future vision, piss will be running down leg as you look to the sun. You’ll ask yourself, what have I created? The answer will be the loss of trust.

http://www.bis.org/publ/cgfs50.htm

67 page report upper right hand corner, dl.

Sat, 02/01/2014 - 15:14 | 4391590 Rip van Wrinkle
Rip van Wrinkle's picture

"To Bill Dudley....This interlinking of all global markets is going to blow up in your face."


Correction required: -

"To the general public....This interlinking of all global markets is going to blow up in your face"

 

 

Sat, 02/01/2014 - 13:51 | 4391445 ghostzapper
ghostzapper's picture

great work ZH.  This type of stuff is what will make history shine a very favorable light on ZH.  

Honestly this is too comical.  Cue the Tooth Fairy leaving a sack of Trillion Dollar Coins under the pillows of the Fed and ECB in 5, 4, 3, 2, 1

Sat, 02/01/2014 - 13:51 | 4391446 Pheonyte
Pheonyte's picture

it amounted to a gift of more than €7bn to the banks

 

I seem to recall a similar gift to JPM, GS, et al. back in '08. Took the Italians 6 years to catch on that they can get away with this bullshit?

Sat, 02/01/2014 - 14:29 | 4391514 TheGoldMyth
TheGoldMyth's picture

The response i get from italy by way of a cousin is that things are so bad in politics/finance that..
"che fanno ridere anche i sassi" (they even make the stones laugh.)

Sat, 02/01/2014 - 14:15 | 4391480 enloe creek
enloe creek's picture

is there a monty python school for retarded central bankers

Sat, 02/01/2014 - 14:25 | 4391504 Downtoolong
Downtoolong's picture

It's like fiat to the third power, for those times when regular old fiat just isn't enough to get the money luandry super clean and bright again.

Sat, 02/01/2014 - 14:28 | 4391518 eucalyptus
eucalyptus's picture

the chinese will take over italy one day after the italians lose it to the north africans and the north africans turn it into even more disfunction.

Sat, 02/01/2014 - 14:51 | 4391554 DCon
DCon's picture

Why stop at 7.5 BN?

Why not 75 or 750?

Sat, 02/01/2014 - 17:13 | 4391800 Pseudonymous
Pseudonymous's picture

As clear an example of fascist policy as you can get. Considering that the same things happened there during overtly fascist times, it doesn't bode well for anyone who has anything to do with those people.

Sat, 02/01/2014 - 17:27 | 4391821 keninla
keninla's picture

the creativity of looting and fraud is truly astounding.

 

Sat, 02/01/2014 - 18:52 | 4392043 ziggy59
ziggy59's picture

This is only a test...

Sat, 02/01/2014 - 20:15 | 4392240 supermaxedout
supermaxedout's picture

On Wednesday, Italy's government voted final approval to a decree hiking the value of Bank of Italy's share capital from €156K to €7.5 billion - something that had not been done since the 1930s

This means, as Reuters reports, that Intessa and UniCredit, currently the central bank's largest shareholders with stakes of 42 percent and 22 percent respectively - not to mention two of Italy's most NPL-heavy banks - will have to sell the bulk of their central bank "equity" stakes. And who will they sell them to? Why the central bank itself, and in return they will pocket up to €3.5 billion ($4.7 billion) from the sale of their central bank holdings.

And the solution is:  The gold of the Bank of Italy was not valued at market prices but at historical prices.  Now this gold is adjusted in the balance statement closer to market value thus a profit of 7.344 is realized.  Intesa owns 42 % of the Bank of Italy so it receives accordingly 39% of this capital gain. (42% minus 3%).  The same accounts for UniCredit.  So far this are facts.

What can be expected in the future:  The bank of Italy is selling its gold at a later point of time to the ECB but at much higher price. The Bank of Italy as well as the other national central banks within Euroland do expect a much higher price of gold soon. Then they sell their gold to the ECB for fresh printed Euros and then forward the profits to their governments. Afterwards the old national central banks can be disolved in principle. The ECB is soon overtaking the supervision of all major banks within Euroland.  Therefore the old national central banks become more and more obsolete. while the ECB is gaining substantial power.

http://www.ilsole24ore.com/art/english-version/2013-09-05/gold-plan-auto...

Sat, 02/01/2014 - 23:08 | 4392684 assistedliving
assistedliving's picture

Italian response to German "wealth bail in" suggestion...

Only Beppe says "you talking to me?"

they dont even bother to call the Squid anymore...oh wait...

Do NOT follow this link or you will be banned from the site!