Monte Paschi Bailout In Peril As 3 Banks Walk Out: Are More "Pensioner Suicides" Next?

Tyler Durden's picture

Two days ago we reported that in a last ditch effort to prevent potential contagion within its banking system, one including bank runs and furious ordinary investors and depositors, ahead of Friday's stress test announcement which Italy's troubled Monte Paschi is widely expected to fail, Matteo Renzi's government was racing to organize a private bailout of the insolvent bank. Specifically, as of Monday night, the Italian government was, according to the FT, racing to secure a privately backed bailout of Monte dei Paschi di Siena, including a plan to raise €5 billion of fresh capital so as to avert nationalisation.

There was no assurance this last ditch effort would succeed, especially in light of Monte Paschi's market cap which has dropped to a paltry €800 million, suggesting that the bailout would be an effective "out of court" bankruptcy, structured as a quasi investment, with fresh money coming in from the new equity owners diluting existing stakeholders over 90%.

There was also no assurance that any new funds would not meet the same fate as the €8 billion in capital already raised over the past two years, money which has since "vaporized" in the seemingly endless hole of Monte Paschi bad debt.



Moments ago, we learned that this "private bailout" process appeared to be on the rock, when Reuters reported that Morgan Stanley and Italian lenders UniCredit and Intesa SanPaolo have walked away from Monte Paschi's "proposal" to back its proposed €5 billion cash call, "a source familiar with the matter told Reuters."

As Reuters confirms the original story, "the troubled lender is trying to pull together a banking consortium to guarantee its proposed capital increase in the next 24 hours so it has a plan in place by the time the results of the European bank stress tests are released on Friday evening. Banking sources say the tests will show the bank has insufficient capital to withstand an economic downturn."

Monte Paschi is not doomed just yet, as the process has so far received interest from Citigroup Bank of America, Deutsche Bank and Credit Suisse. Not surprisingly, the last two banks are the ones who stand to lost the most should an Italian banking crisis flare out and spill across the border with either Germany or France. 

As Reuters adds, other banks including Societe Generale, UBS and Nomura are currently being contacted in a bid to share the cost of the proposed transaction which is said to involve Monte dei Paschi issuing stock at between 0.5 and 0.6 percent of its tangible book value, the source said.

However, it is not looking good, and Reuters' source adds that "As things stand now, the consortium is weak. More banks need to come onboard." Another source, who is close to the Tuscan lender, said Monte dei Paschi is expected to release the guidelines of its rescue plan on Friday and is confident of reaching a pre-agreement with a sufficient number of banks "in due time."

While we appreciate the optimism, we wonder if Italy is prepared for the alternative, namely the much dreaded "bail in"?

We are confident the answer is no, for a simple reason: the last thing the increasingly unpopular Matteo Renzi government, which itself is facing a referendum in three months, can afford is more public anger stemming from the bail-in of the third biggest Italian bank, one which may spread to other, equally distressed, lenders.

The problem, as Bloomberg wrote in an article earlier today, is that should Italy take the bail in route, millions of ordinary mom and pop investors could see a complete wipe out on their investments. Consider that at the zenith of the financial crisis, between July 2007 and June 2009, 80 percent of Italian banks’ bonds were sold to retail investors, according to regulator Consob. Through savers, banks funded themselves at a similar cost to the Italian government, whereas they gave professional money managers an extra percentage point in debt interest, the 2010 report found.

Those doing the "funding" were people like Vincenzo Imperatore.

Vincenzo Imperatore wants you to know he was just following orders: Selling risky bonds to customers seeking safe retirement nest eggs was only part of the job. When financial markets shut during the financial crisis, depositors were Italian banks’ most reliable source of funding. “I was getting five, six calls a day from my bosses pushing me to sell them,” says Imperatore, who helped sell products to retail customers for six years at UniCredit SpA in the Naples region and has written two tell-all books about his experiences. “I was instructing the local salesmen to do the same.”

And as documented extensively here, should Italy proceed with more bail-ins, the households that helped prop up the nation’s banks during the crisis are again on the front line of efforts to bolster Italy’s tottering financial system. The subordinated debt they hold may be first to take losses in a government-orchestrated recapitalization now being negotiated in Rome and Brussels.

"It’s a popularity-destroying outcome Prime Minister Matteo Renzi is trying to avoid before a referendum later this year to overhaul the political system -- a vote he needs to win to stay in power."

The amount of retail exposure is anything but trivial. Retail investors own almost half of the most vulnerable securities, a legacy of banks using their customers as a piggy bank for cheap funding.

Selling subordinated debt to depositors was “the way they recapitalized the banking system,” according to Jim Millstein, the U.S. Treasury official who led the restructuring of U.S. banks after the financial crisis, said in a Bloomberg TV interview. By imposing losses on bondholders “you’re inflicting damage on the people who would otherwise be spending money in your economy,” he said.


UniCredit, Italy’s largest lender, declined to comment on Imperatore’s recollection. The bank’s subordinated bonds available to retail investors trade close to par, indicating investors don’t expect to suffer losses, Bloomberg data show. The bank is considering raising as much as 5 billion euros ($5.5 billion) from shareholders and selling its entire stake in Poland’s Bank Pekao SA to raise capital, people familiar with the matter said on Wednesday.

Unlike their fellow Europeans, Italians favor fixed income for their savings. According to Bloomberg, they held about €430 billion of bonds at the end of 2015, two-and-a-half times more than Germans and three-and-a-half times as much as Britons, according to a report by Assogestioni, a Milan-based investment industry association. Historically, government debt was among the few instruments that safeguarded savings from rampaging inflation. The average interest rate on new issues of Italian sovereign bonds was 14 percent in 1992. It dropped to 3.7 percent when the euro was launched a decade later, according to data from the Ministry of Economy.

Pensioner Suicides

The bigger issue for Renzi is the dire public reaction that will follow if Monte Paschi is forced to be bailed-in, and if this results in contagion spreading to other banks, slamming their junior securities in kind.

It wouldn't be the first time.

A retired school custodian in Urbino, central Italy, who asked not to be named, saw 112,000 euros in Banca Marche subordinated bonds, a large part of its life savings, wiped out. He said that the bank convinced him to swap senior notes into subordinated bonds in 2007. He realized he’d lost it all only when, alarmed by news of the bank’s imminent insolvency, he asked for more information at the local branch last year.

As BBG notes, bondholder losses became a hot topic last year when the national media covered the suicide of a pensioner near Rome after he discovered he had lost more than 100,000 euros in Etruria’s junior debt in December. 

Later in December, the European Commission supported Renzi’s plans to compensate bondholders for “potential misselling of bonds.” The government approved a decree in April to let bondholders of the four failed lenders banks be reimbursed for as much as 80 percent of their holdings if they have gross annual income of less than 35,000 euros or personal assets of less than 100,000 euros.

“It is strikingly similar to what banks did before with Argentina and Parmalat,” said the lawyer Bisello. “Many of my clients are factory workers, pensioners, who lost all the savings they had. Some of them were told that investing in subordinated bank bonds was just a way to earn higher interest, but just as safe as investing in Italian government bonds.”

The bottom line: if over the next 24 hours Monte Paschi is unable to obtain the needed €5 billion in funds it needs from a consortium of outside investors, and if Europe remains resolute in its denial of a government-backed bailout, the only possible step would be a bail in, one which could spark the next leg of Europe's banking crisis.

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PAPA ROACH's picture

Bullish!!!!!!! BTFD!

InsaneBane's picture

Heard in the boardroom:
"We need distraction, some kind of false flag"

Haus-Targaryen's picture

When one looks at BMPS NPL portfolio, and compare it with €5 billion investment, one automatically knows that €5 billion will never see the light of day again.  Thus, it seems, that the banks that support BMPS are the ones with the most to lose if they fail.  

Kicking the can, bankers edition. 

bob_bichen's picture
bob_bichen (not verified) Haus-Targaryen Jul 28, 2016 1:35 PM

So the "can-kickers" have managed to get the can stuck on the end of their $1000 Gucci loafers and in the process of hopping around on one foot trying to pry the can off their shoe, they have stepped in dog shit with the other shoe.  "The rest of us" just stand in silenced awe, watching the entire spectacle.

Just put Christine, Mario, Janet, any of the Central Bank comic book characters into this skit routine ....

berlinjames02's picture

Haus, Great comment (per usual. I'm a lurker, but rarely comment.)

WSJ reported BMPS NPLs were at $50bn... Total capital is ~$10bn. If you assign a 20% LGD, basically the value of the equity is probably negative.

BMPS states their Tier 1 ratio is over 10%, so they're well capitalized. Hillarious! Can't wait for the EBA results tomorrow.


Dr Ongo's picture

How can people still have money in these banks is unbelievable 

The Duke of New York A No.1's picture

As many suicides as it takes to keep Merkel & her gang of social engineers happy.

Tinky's picture

"Monte Paschi is not doomed just yet, as the process has so far received interest from Citigroup Bank of America, Deutsche Bank and Credit Suisse."

Orwell's coffin just split open due to the riotous laughter.

pods's picture

Bankers stealing anything not bolted down to the floor?

Sounds about right.
Cue South Park video clip.

How about these pensioners disembowel the sweet talking banker who needed to get rid of some rank shit in order to make their goals and ensure their bonus?


The Duke of New York A No.1's picture

Cue Moosluum terrorist rampage in 3, 2, 1 ....

N0TaREALmerican's picture
N0TaREALmerican (not verified) Jul 28, 2016 1:15 PM

I'm going with "bail in".    We MUST move loot from the bottom to the top.  

Urban Redneck's picture

Perhaps Ignazio Visco should ask his predecessor at Banca d'Italia (Mario Draghi) for tips on the Bankster Reacharound - print some EUR at taxpayer expense and discretely hand them to nearest taxpayer fucking bankster so they can keep it up, it's neither complicated nor difficult.

ToSoft4Truth's picture

Instead of suicide may I suggest Martyrdom? 

nope-1004's picture

Banks will bring down the entire financial system. This fact is so clearly visible.

Atomizer's picture

Is this a sequel to a Monty Python skit? Fucking hilarious. 

Merchant Banker Monty Python's The Flying ...


Fuku Ben's picture

I have a feeling were going to see a lot more suicides. It would be better if they take out their hostility out by putting their efforts into holding the global criminals responsible accountable for their crimes. Bonds will be downgraded so fast or default and a lot of people are going lose everything in them fast. Even though they think they had themselves protected in safety through the bonds. If you don't hold it the criminals will steal it all. Even if you hold it you better lose it of they also find a way to steal it.

Even though derivatives are much larger I'm still going with bond defaults will lead to derivatives collapse will lead to market collapse. Just like last time.

buzzsaw99's picture

You fucked up, you trusted us. [Otter the bank bond salesman]

SoDamnMad's picture

Could we be serious for a moment. Really guys.  Put down your beers and control your anger for Hitlary.  Are "time deposits" and other forms of "certificates of deposit" considered subordinated debt?

cowdiddly's picture

I'll make it simple for you. In times like these if it is'nt in your mattress, safe, bottom of the lake  or ass pocket consider it subordinated.

Atomizer's picture

Ask yourself twat. This is how banking works. Do you own a tranche allocation to specific bank? When the bank goes tit's up, better hope your tier 1. Stop lying. You have no clue. 

Money Confiscation Legal? Keep YOUR Money OUT ...

Boing_Snap's picture

when you give something to a bank, that something is now the banks, you have a lovely account record. when the bank goes tits up you're last in line with your hand out, and guess what? with the leverage a bank uses there will be nothing left for you, the unsecured creditor. if the banking system goes tits up the government insured accounts will only pay out 1% if you're lucky, and that 1% will be worthless fiat currency.

Dark Daze's picture
Dark Daze (not verified) SoDamnMad Jul 28, 2016 3:46 PM


Reginald Blome's picture

1. Edumacate yourself - as much and as fast as you can. Make it your 3rd full time job.

2. Only keep in a bank what you're prepared to lose - rule of law doesn't exist today, whatever your paperwork says is irrelevant.

3. Only physical precious metals, held in your possession / nearest lake bottom have a chance of remaining yours.

Otherwise you will be wiped out. Good luck.

Richard Head's picture

1-800-CASH-CALL. Tell them Gary Coleman sent you.

gregga777's picture

€5 billion is woefully inadequate to the task of saving Monte Pasche de Siena. Though it may buy them another year by kicking the can down the road, again. The problem is that MPS NPL's exceed €47 billion and their provisions for NPL's are a little more than €23 billion. The estimated recovery on their NPL's is 20% meaning that they need about €14.6 billion more in NPL reserve provisions [-€47 billion • (1-20%) + €23 billion = -€14.6 billion] just to reach a positive, instead of deeply negative, book value. But, in another year their steaming pile of NPL's will likely be greater and the slow bleed of red ink will have pushed their true book value even more deeply negative.

Italy must break free of the Euro stranglehold imposed by Germany. I'm no fan of the IMF, but even they forecast another decade or more of stagnant GDP in Italy. In reality I'm sure that Italian GDP has been steadily shrinking and will continue to shrink. That will result in even greater NPL's AND even more shrinkage in bank lending and capital investment. The banking system and economy use positive feedback, which is a guarantee for instability, and economic decline becomes a self-reinforcing process.

Txpl9421's picture

Go ask DB. They will lend you money.

jonebize's picture

How much will PM's move if MPB (not to be confused with MDB) can't find a creditor and needs a bail-in? 

Watson's picture

All other things being equal, down.

Because the bailin process destroys wealth that a day before some people thought they had.
So, even if they wanted to, those people have rather less to spend (on everything, not just PM's).

If the entire banking system implodes, but major political systems survive (my belief), then best investment IMHO is USD and CHF notes held in a very unadvertised fashion in Bank Of Mattress.

If the political systems go as well, then best investment probably fairly remote quality farmland.


gregga777's picture

The banking system IS designed to bring down the whole system. That is the entire premise of their "Heads we win, tails you lose" business model. They could hardly amass the entire world's riches by "picking up pennies in front of a steamroller" by honestly taking deposits and making sound loans. No, they generate massive losses gambling on derivatives of derivatives of bets on snail races in order to get lucrative taxpayer bailouts which they then siphon off in various other sorts of ingenious scams and frauds. They wisely bribe the political parasites to keep them happy enough to allow them to continue their rackets.

Reginald Blome's picture

Gregga please!

Seriously though, I appreciate your thoughtful comments and learn much from them. Thank you for taking the time to write them.

Batman11's picture

The Club-Med nations have had enough of:

"Unconditional bailouts for bankers and austerity for the people"

A bailout would be political suicide

The Spanish who were mis-sold bonds were compensated, Italy can do the same.

Everyone has to learn, investing in banks is for morons.

Bankers are the stupidest people on the planet.



Atomizer's picture

The lying cunt Hillary Clinton wants to revamp NAFTA to screw to over TPP law to be passed. 

Same bullshit in passing....this cunt can't tell the truth. God Bless America. 

Hillary Clinton Defending Repeal Of Glass Steagall ...

Shibboleth's picture

“I was getting five, six calls a day from my bosses pushing me to sell them,”

Always be closing.
Get them to sign at the line which is dotted!

Atomizer's picture

In 1999 Congress passed the Gramm–Leach–Bliley Act, also known as the Financial Services Modernization Act of 1999, to repeal them. Eight days later, President Bill Clinton signed it into law.–Leach–Bliley_Act

Citibank was failing in 1998. We are approaching 2017. Hang the fucker's. 

Double.Eagle.Gold's picture

100% right, Citibank is dead meat.

MasterOfTheMultiverse's picture

European Union designed BRRD (Bank Recovery and Resolution Directive) to protect public money from being used for bank bail-outs. However, only, and only if banks fail stress testing, BRRD does not apply. Hence, BMPS, just like DB, will fail tests and subsequently apply for taxpayer money, just like good ol' 2009. Public anger will be then be directed at perception of terrorist migrants from Middle East, while European populace will pay banksters again through upcoming rounds of austerity and tax increases. Britain stepped out of black hole that is EU just in time, wonder who's next.

Watson's picture

Britain stepped out of black hole that is EU just in time, wonder who's next

Personally, I think 50-50 between The Netherlands or Germany (yes, Germany).
The southern states need the EU to preserve a standard of living they do not earn.
The Netherlands doesn't need the EU, Germany certainly doesn't, and is only the treasurer of the project because of guilt over WW2.


Dark Daze's picture
Dark Daze (not verified) Watson Jul 28, 2016 3:44 PM

The Netherlands is one of the most indebted countries in the EU.

TxExPat's picture

Germany at the last minute possible.  Their economy is export driven, and a good chunk of that goes to Southern Europe.  Using a "sound" Mark instead of a Euro would undermine their exports.  Right now they are keeping their own economy up at the expense of Southern Europe.  They will keep this up until the Bills come due, (Federal Revenue Sharing at the European Level), then they will wash their hands of it and figure out Plan B, till then it's actually all good as far as they are concearned...


Evan Wilson's picture

How in the world can they lose so much money so fast?

It is like they are all a special kind of stupid at these banks.


Evan Wilson's picture

How in the world can they lose so much money so fast?

It is like they are all a special kind of stupid at these banks.


Watson's picture

I think people waste time looking at BPMS, when they should be looking at Unicredit.


Paracelsus's picture

 Iceland had some pain but are getting healthier as time goes on.

They even put a few bankers in jail for a couple of months.

Banks fail all the time but I was pretty shocked by the Cyprus bail-in of depositors over the


This was outright theft of many English ex-pats savings because the Cyprus banks were

force-fed worthless Greek bonds.

This was picking up nickels in front of a steamroller and it only works once.

Five bucks says BMP was holding some wrong way paper,oil futures or derivatives

and they started exploding in their file drawers.Better to shut it down.

Allowing it to survive for another year will be like "bailing out the Titanic with a teacup".

The five ton elephant in the living room is the ISDA,a committee which determines whether

a "credit event or default" has occurred.No one in the media ever touches that issue....

Reginald Blome's picture

Yeah, I thought it was a HUGE deal at the time when ISDA said that the Greek restructure was "not a credit event"

To me, that signaled that the whole cds / derivatives game is a joke, for selective usage against certain players. Yet another scam.

Tylers - enlightening content about ISDA would be greatly appreciated!

Oh yeah, fuck Hitlery and buy some gold.

Stick in the Mud's picture

I don't get what the fuss is about. Just massage the numbers to make the bank look solvent, like they do in the U.S. Just mark to unicorn all the crap in the balance sheet, raise the provision for losses a tiny but precise number--say 0.666%-- and call it good.