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

Tyler Durden's picture

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."

Monte Paschi and advisers JP Morgan and Mediobanca will meet as early as Monday morning to decide whether to pull a plan to go ahead with a E5bn recapitalisation, according to people informed of the plan, Rachel Sanderson in Milan reports.


Senior bankers will decide whether to pursue their underwriting commitment or exercise their right to exit the transaction due to adverse market conditions, these people said. In the event the banks drop the capital plan, the Italian state is expect to nationalise the bank, say senior bankers.

The FT also adds that if Monte Paschi’s private recapitalisation plan fails, Italy is expected to undertake a precautionary recapitalisation of the bank to avoid it being wound down under new EU rules, say people informed of the plan."One big Monte Paschi investor said the extent of Mr Renzi’s loss was “a really bad result”. This person said they expected the private recapitalisation would be pulled and the Italian state would pump funds into the bank."

A precautionary recapitalisation, also known as a dreaded bail-in, would involve burden sharing by junior bondholders but with indemnification for investors up to a maximum of €100,000, said three people.

The FT cites officials and bankers who want to head off the risk of a deposit flight from Monte Paschi which has seen its deposits falls by 10 per cent so far this year as concerns about its viability have mounted; alas it is difficult to see how a bailin would achieve that, especially if depositors are impaired. 

* * *

Officials also want to prevent contagion from Monte Paschi hitting Italy’s wider banking sector which is already weighed down by €360n of soured loans, low profitability and more bank branches than pizzerias.

Here, as the WSJ adds, should Monte Paschi's third bailout attempt fail, the contagion could be swift, "with Italy’s troubled banks among the biggest victims of Italy's rejection of Matteo Renzi’s proposal to make key changes to the country’s constitution."

Mr. Renzi's resignation could bring an abrupt end to the government’s efforts to clean up the banking sector, which is suffering from a double whammy of low profitability and huge bad loans.


The prospect of political instability has created volatility in financial markets for weeks and Italian banks have markedly underperformed the rest of the Italian stock market this year. In the case of a ‘no’ vote, which now looks all but nailed on, investors are expected to sell off banking stocks in Italy–and possibly other European countries over contagion fears–when trading opens Monday morning.

It's not just Monte Pashi: The vote could also affect plans by UniCredit SpA, Italy’s largest bank, to raise as much as EUR13 billion. The bank is far healthier than Monte dei Paschi and less exposed to the fallout from the 'no' vote, since it could wait for calm to return to the markets before asking shareholders for capital. News could emerge from a Dec. 13 presentation by UniCredit’s top management in London, where they will unveil a new strategy.

There is, of course, the ECB, which warned last week it is prepared to step in and "temporarily step up purchases of Italian government bonds" if tomorrow's banking sector contagion were to "sharply drive up borrowing costs for the euro zone's largest debtor."

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FX223's picture

Fuck it, dust of the printing press, add a few zeros more and get those lira back on the street.

Oh and don't forget to give gold the big smack down too.

Keep stacking and stashing friends.

Yen Cross's picture

  It's almost time to add to my usd/jpy shorts again.  :-D

GreatUncle's picture

Lol you might want to consider some running shorts.

BurningFuld's picture

This looks like an excellent time for gold to be hit.

chosen's picture

The dollar will rise, which almost always lowers the price of gold.

logicalman's picture

Its price may have changed in terms of US toilet paper.

Its value remains the same.

Md4's picture

Perhaps the woids "cascade" and "contagion" will be used often very soon...

TradingTroll's picture

Your avatar is the Japanese character for samurai

nmewn's picture

So wait, the bank is not solvent?

Where are all the renowned public servant, regulatory & bureaucratic police-sie type peoplez?! ;-)

deerhunter's picture

Scheme la Ponzi swan with black sauce ?

AlexCharting's picture

Maybe not this time, but there will be a time when no amount of damage control can save the market. 

Dilluminati's picture

Be careful, after a near decade of zirp around the globe there was large borrowing in dollars.  When too many debts chase too few dollars, and a bank coming up short is that definition of short dollars, then what you have is "deflation."


Deflation is where too many debts chase too few dollars and the banks lose.

Inflation is where nobody borrows and the consumer loses.

I'll await the spike and then predict further erosion in the metals because there isn't a higher bid.

Western consumers are getting older and want to save.

itstippy's picture

All of Italy's banks are holding vast portfolios of really bad loans.  None can step up and buy out the struggling Monte Pashi; there isn't a single solvent large bank in the country.  What rotten luck!

JackT's picture

When the tide goes find out..

chosen's picture

I was in Italy in 1975 and changed some American Express checks into Italian lira notes, maybe about $500 worth.  It turned out about half the lira notes I got were counterfeit.  Vendors would put them under an ultra violet light to tell.   I had my girlfriend, who was fairly cute and spoke no Italian, go to a nearby bank and change them into smaller bills.  She did, no problem.   Also in 1975, whenever I went shopping, I would never get coins for change, the vendors gave pieces of candy instead.  I thought, what a weird fucked up country.  Nice to see nothing has changed.

Bam_Man's picture

Yes, it is a weird country, but they make the best cars, wine, fashion, food, art, opera, and have the hottest women on earth.

The scenery ain't bad either.

You gotta love Italy.

mc888's picture

+1 - any country that can't build a proper racecar is a third world country.


chosen's picture

Actually, I really like Italy.  It is pleasantly chaotic.  I wouldn't want to work or do business there, but it is a fun place to visit.

buzzsaw99's picture

draghi isn't going to let anything bad happen to italy's banks.

GreatUncle's picture

Agree - even more so if push comes to show US / UK will bailout too.

This cross contagion in a free trade world means the rest of the world gets it.

mosfet's picture

I'm countin' on it.  When he steps up to the window to hand out freshly printed Euros to Monte Paschi & Banko Popular, every other Italian and Spanish bank will line up around the block to clamor for a free handout.  Once the Euro's worth 75¢ to $1 the Germans will say enough is enough and force the ECB to turn off the free money spigot.  That's when the shit starts hitting the fan.

buzzsaw99's picture

Germany has DB to consider.

luna_man's picture



Hurry! Hurry!...You better be there when the doors open, otherwise, you may not get your MONEY!


You know..."the early bird"...

GreatUncle's picture

Bets please ...

>> All CB's step in to keep it all going

>> All CB's pull back and toast themselves in the process.

They are in it so deep they cannot afford it to collapse.

JCJames's picture

I agree, another TBTF event. I think the CBs will keep rescuing for as long as they can. Bail-ins are also part of the rescue plan, which is why the large depositors would want to get their money out before it happens. The lender of last resort might even be the IMF if the CBs run out of ammo. How long can this be kept up?

DulciusExMan's picture

Someone yelled "fire"! in the theatre.  Let's see how many get out.



peddling-fiction's picture

The emergency doors have been locked. Nobody gets out.

Now yous can't leave...

Verniercaliper's picture

Wind it down like any insolvent business....might as well get the world used to it....

thismarketisrigged's picture

somehow this will be very bullish for the entire banking sector tomrrow across the globe.


fucking banker shitheads

jamesmmu's picture
Enjoy The Highs Of The Market, But Realize The Lows Are Inevitable – Prepare.

sinbad2's picture

This is a rerun of Greece, if Italy doesn't handover every asset it has to Germany, the Germans will bankrupt Italy.

But it's all bluff, if Germany bankrupts Italy, Germany will also go down. If the EU goes down, so will the US.

Italy is in a perfect position to blackmail the EU, demand a 100% right off of all debt, or they will blow up the US/EU.

The US controls Germany, so the US would make sure the Germans paid up.

fockewulf190's picture

The Great Reset is going to happen.  Eventually a point will be reached where MATH becomes all powerful, and once it does, control will be lost.  It´s going to be horrific when billions of dirt poor people see the two dollars or less they have to live on per day vaporize into inflationary nothingness. 

Catullus's picture

How about all eyes on French banks that have lent Italian banks so much money?

TeraByte's picture

Just print  $ 4 trillion for the Italian banking and all the troublems will be gone.

assistedliving's picture

does anyone know wtf is going on anymore?

HRH Feant's picture
HRH Feant (not verified) assistedliving Dec 5, 2016 1:34 AM

I think this used to be called: winging it.

ItsSnowingInColorado's picture

Greece was small enough to be bullied, Italy is not.

If you owe the bank 1 million they own you, if you owe them 10 billion you own them.  

Scale this to the scale of Italy's debt and it's position in the EU and the EU cannot push Italy like they did with Greece. Contagion within a potential Italian banking crisis is of a different magnititude. 

Expect a bail-out or a bail-in. 

vote_libertarian_party's picture

OMG....aaaaWWWOOOOOggguuu....aaaaaWWWWOOOOOOgggguuuu  sound the alarms...disaster dead ahead


(futures down 0.1% on the news)





pparalegal's picture

And the public/ private derivatives ?????

HRH Feant's picture
HRH Feant (not verified) pparalegal Dec 5, 2016 1:35 AM

Up in smoke but bailed in by the public. As usual.

JailBanksters's picture

They're going Full Monte

Paracelsus's picture

   I have no problem with the Banks. Only.....

When they make huge profits they keep it all and object to any 

supervision, mandatory capital reserves, regulations, etc.

 The definition of moral hazard is that they will take huge risks knowing

that the gov't will backstop them no matter what.That is not capitalism...

This time is different because the midlevel debt holders will feel some pain.

  The problem they are not talking about is someone no doubt will

have purchased a shitload of bad, toxic derivatives which have exploded.

  They keep repeating it is non performing loans, real estate,etc. but I 

think that is bullshit.The oil price stagnating for the last year or so has 

blown up Venezuela, so why not Italian banks as well?

  I love the Italians but they also have huge corruption problems.

The referendum result says it all. Basta! ("Enough!").

  P.S.   As many Italian Pensioners will have bought MPS bonds thinking

they were completely safe, I see a few lawsuits on the horizon.


   I agree about the risk being contagion. But it is more along the lines if they

bail out one then they have to bail them all out.

HRH Feant's picture
HRH Feant (not verified) Dec 5, 2016 1:32 AM

Apparently Banco Monte Paschi is trying to scrounge up $5 billion -- and can't. It looks like the world's oldest bank is going to go tits up.

Makes you go huh. Bloomberg seems stunned. The usual useless news readers doing as they are told. How entertaining!

tarabel's picture



Far healthier than Mountain of Pigshit?

Well, anything having a pulse would qualify.

Even anything where the Death Certificate has not yet been filed.