Monte Paschi Rescue On The Rocks: Regulators Now "Expect Bank To Ask Italy For Bailout"

Tyler Durden's picture

Ever since two months ago, when Italy's third largest bank - and the world's oldest - Sienna's Monte dei Paschi, failed Europe's latest stress test, it had scrambled, and assured markets, that it would obtain a private sector cash injection, aka bailout, amounting to roughly €5 billion in fresh capital, there was significant speculation in the Italian press that the capital raise was not going well as third party investors were uncomfortable to allocate funds to a bank whose history of failure and unprecedented bad NPL book remained a daunting obstacle. The reason why Monte Paschi was forced to seek a private sector bailout is that Germany had repeatedly shut down Italian PM Matteo Renzi's attempts to pursue a public sector bailout. Instead, the Germans demanded that instead of a public sector bailout the bank should implement a bail-in, and impair various liabilities, which however could result in another bout of public anger, due to the substantial retail investment in the bank's unsecured bonds, perhaps culminating with a run on the bank.

In any case, there was little news about BMPS' ongoing bailout plan, and now we know why: according to Reuters, European regulators expect Italian bank Monte dei Paschi di Siena will have to turn to the government for support, although Rome - as expected - would strongly resist such a move if bondholders suffered losses. Making matters worse, in the first half of 2016 much of the public's attention had focused on the infamously unstable Italian banks, of which Monte Paschi was the weakest link, and as such the reemergence of solvency concerns involving the Italian lender could potentially reignite fears about the broader banking sector even as the Italian referendum due sometime in late October or November, gets closer.

Which brings us back to the latest Reuters update on the BMPS' bailout progress, or lack thereof: according to the news service, "while the bank is determined to see through the capital raising, if it were to disappoint, it would be left with a capital hole. Now euro zone authorities are considering whether state support would have to be tapped after what bankers have described as slack interest in the bank's share offer."

"There is clearly an execution risk to the capital raising," said one official with knowledge of the rescue attempt, adding that the bank's value, about one ninth the size of the planned 5 billion euro cash call, would be a turn-off for investors. That person said a "precautionary recapitalization by the Italian state" could be used to make up any shortfall once attempts to raise fresh cash from investors had concluded in the coming months.

Of course, that takes us back to square one, where the debate of bail-in over bail-out remerges, and puts the spotlight not only on Monte Paschi, but all of its allegedly more stable peers.

Reuters sayd that Monte dei Paschi declined to comment. The Italian treasury did not want to comment for this story. A spokesman for Prime Minister Matteo Renzi said he was not aware of any expectations among European regulators that Monte dei Paschi may turn to the state for help.

Some more background on this story from Reuters for those who are new to the story of Europe's longest running bank rescue:

Monte dei Paschi faces a considerable challenge in convincing investors to back its third recapitalisation in as many years. Further complicating the picture, a constitutional referendum, expected to be held by early December that could decide the future of Renzi, is likely to push the bank's fund-raising into next year, the officials say.


The bank's fragile state poses a threat to confidence in other Italian lenders and even to heavily-indebted Italy, the euro zone's third-largest economy.


Renzi and his economy minister, Pier Carlo Padoan, have said in recent days Monte dei Paschi's capital raising will be successful. Sources close to the consortium of banks that have made a 

preliminary commitment to underwrite the 5 billion euro privately-backed cash call dismissed suggestions it may fall short as "nonsense."


Reopening the question of state support, which had already been explored and dropped because of the losses it requires for bondholders under European bank crisis rules, is politically charged, and would reignite a dispute between Italy and Germany.


Berlin had objected to Rome's efforts to back the struggling bank without imposing a loss on its bondholders, according to another senior official. But while some in the German government argue that Italian savers are wealthy enough to shoulder the bank's problems, Rome wants to spare both institutional investors and ordinary Italians who have tied up their money in its bonds at all costs.


Renzi's government fears that hitting bondholders would be extremely unpopular and could trigger a wider confidence crisis in the Italian banking system.

So what may have exacerbated the tension? A quick answer is... Renzi himself: recall that earlier this week Renzi took a public swipe at Germany, telling its central bank chief Jens Weidmann to fix the problems of its own banks which he said had "hundreds and hundreds and hundreds of billions of euros of derivatives". He was, of course, referring to Deutsche Bank.

This latest, and very public attempt to redirect attention from Italy's banking woes to those of Germany may have been sufficient for Merkel and more importantly, Schauble, to pull some strings in the background, resulting in today's Reuters report.

Further, recall that it was none other than Renzi's predecessor Sylvio Berlusconi who in 2011, when as punishment for his non-compliance with European "principles", was forcibly "removed" by the European establishment. Perhaps it's time for round two, and if it takes the sacrifice of one more bank, together with billions in depositors' funds and investments, so be it.

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ANestIOS's picture

and who's gonna bailout Italy?

nibiru's picture

French banking sector owns lion’s share (280 bn USD) of the cumulative Italian bank credit exposure.

Holding position in a sector which is overleveraged and at the brink of bankruptcy is nowhere near responsible. Italy, on the other hand, were granted great bargaining position politically,  giving them a good night’s sleep. Yes, their banking sector is bankrupt but Matteo Renzi doesn’t need to worry because EU politicians cannot allow anyone to fail. If Italy goes bankrupt, France follows and then Germany and whole Europe is next.

ANestIOS's picture

and what happened to the "moral hazard"?

back to basics's picture

Hahahahahaha Hahahahahaha Hahahahahaha Hahahahahaha 


(Stop it, you are killing me)

Ghost of PartysOver's picture

"moral hazard" left the building in the 60's and 70's with the Hippie Generation.  Love, peace and acid.  Groovy man.

Silver Bug's picture

Don't look here! Everything is fine in the West! We just need to print copious amounts of more fiat money and everything will be fine! Extend and pretend nonsense.

Captain Chlamydia's picture

The oldest bank in the world..... Well, I assume they stole enough money through those centuries. Belly up  Monte De Paschi! 

Philo Beddoe's picture

Bank on the rocks. Ain't no big surprise. Just pour me a drink and tell me some lies. 

Zarbo's picture

What a great name for a new cocktail!  I'll have a "bank on the rocks" please, shaken not stirred.

Youri Carma's picture

Yeah, but a little bit less ice please than last time on that unfortunate Bernanke trip.

assistedliving's picture

always loved picturesque Sienna...time to buy RE there?

GunnerySgtHartman's picture

A foreshadowing of DooshBank ...

wmbz's picture

I imagine they'll just nationalize douche bank. That's sure to "fix" it.

Doom Porn Star's picture

After what Ireland and Greece have been put through by the EU Oligarchs some portion of their respective populaces will likely return to guerilla warfare if bailouts are engineered in Italy and Germany...

wmbz's picture

"Stress Test"  Yea, Right! Who comes up with these so called stress tests? Regulators! That's funny stuff there.

Just more bullshit, do not like a number, simply change it.

bada boom's picture

Just take the deposits, what's left anyway, and run.

Doom Porn Star's picture

I do not owe YOUR creditors one single cent.



( Italian translation not supplied due to 'execution risk to the capital raising'. )

Paul Morphy's picture

If they're not already share holders maybe the Bank of Japan will decide to invest some capital in MDP?

The Swiss Central Bank might be also interested?



dark fiber's picture

Monte Pasci.  From EUR100 to EUR0.19  in ten years.  And nobody is in prison over this yet.  US is not the only banana land in the world after all.

UnschooledAustrianEconomist's picture

We are one big NWO banana republic.

TalkToLind's picture

Oro, stronzas!

(Gold bitchez)

chosen's picture

Nobody really cares about some dego bank.   The real news will be when Deutsche Bank goes belly-up.

Paul Morphy's picture


In this interconnected world the counter party banks to a failed bank, become at risk from every bank failure. It's a domino effect.

Bank A owes Bank B. 

Bank A starts to falter, Bank B notices Bank A faltering and starts getting jumpy too.

Bank C notices that Bank B is getting jittery, and on it begins to get jumpy. 

The effect may dissipate or increase depending on which bank is more exposed to other banks in the firing line.

THE DORK OF CORK's picture

In August 2016, the European passenger car market posted strong growth figures (+10.0%), with

registrations totalling 819,126 units. An impressive performance, considering that August normally

is one ofthe weakest months ofthe year in volume terms due to the summer holidays. These positive

August results followed a (?1.4%) decline in July, when a continuous streak of 34 months of

consecutive growth came to an end. Among the major markets, Italy (+20.1%) and Spain (+14.6%)

recorded the highest percentage gains, followed byGermany (+8.3%), France (+6.7%) and the United

Kingdom (+3.3%) – all of which performed better than in August 2015.

Over the first eight months of 2016, new passenger car registrations increased by 8.1% in the EU,

reaching 9,787,760 units. All major markets posted growth, contributing to the overall upturn of the

European market. The Italian (+17.4%) and Spanish (+11.3%) car markets saw double?digit growth

over the period, followed by France (+6.1%), Germany (+5.7%) and the UK (+2.8)"

The credit car nexus has and is bankrupting the Italians 

The amount of oil used for  domestic production / consumption is tiny. 

Every year distribution inputs shallows a larger and larger % of a smaller pie.

Paul Morphy's picture

Cars sold on the tick (credit) presumably.

Car sales are a measuring of nothing, except indebtedness. Is that your point? ffs.

THE DORK OF CORK's picture

It's more then that.

When looked on with scientific rather then money monopolists eyes the economy is a simply a production / distribution and consumption system.

The distribution inputs are overpowering the production / consumption system. 

This of course mirrors  the world economy but Italy Spain and Ireland seem to be the most extreme cases.

Doom Porn Star's picture

Overcapacity MUST be distributed or exported.

The CREDIT SYSTEM REQUIRES THIS in order for the debtor corporations to generate cash flow in order to continue to maintain existing debt commitments.

It's called dumping.

monad's picture

We lost all the moneys you gave us. Ken we haz some moar?

big-data's picture

This document provides the relationship between Italy shifting from the weaker lira to the stronger euro, the loss of competitiveness from the currency change (drop in GDP), the impact of globalization that then effects loan performances resulting in non-performing loans and the banking crisis we read about now as headline news, Band-aids will not fix it; Italy needs to leave the eurozone to survive or else it will become a failed state like Greece.

Fiji's picture

That's right. MPS is the bank of italian democrats, they borrowed money to failing tycoons and politicians' relatives and friends... Also Antonveneta takeover was very very very opaque...

BTW Monte Paschi bond holder deserve to be screwed, the could sell the bond at around 99 but they want to get 105 at the end of the months

We Are The Priests's picture

We thought a failed state was/is the point.  How else are you able to dominate and impliment globalist governence?

Herdee's picture

No doubt,the powers at be inside Germany and the EU will find a way to get rid of this guy and screw Italian investors bigtime.

bytebank's picture

Just have them make more loans. That should fix it.


oncemore's picture

Berlusconi Monti Letta Renzi.

Berlusconi was putched away, but Renzi is the third unelected PM after last elect Berlusconi. SO much about the "western" democracy. They do not even pretend any elections, they make a direct selection.


On the subject: if Germany bails out DB, then Italy can bail out all and every bank. Not only Italy, the whole EU.

MaxThrust's picture

Rhetorical Question:

Who "in the world" would have a deposit in Monti Paschi. I guess only those who have not been paying attetion.

Convert the ink on you bank statement to something you can walk on or hold in your hand. Gold and Silver seems to have work out quite well for the last 4000 years.