Italian Government Prepares To Nationalize Monte Paschi

Tyler Durden's picture

The wait is almost over.

After two previous taxpayer funded bailouts, and nearly five months of foreplay since the third largest Italian bank failed the latest European stress test at the end of July, in which the Italian government in September vow that "bailout for Italian banks has been 'absolutely' ruled out", a third bailout, as we previewed earlier today, is now imminent.

According to Reuters, which cites two sources, Italy is preparing to take a €2 billion controlling stake in Monte Paschi as the bank's hopes of a private funding rescue have faded after a fruitless five month search to secure an anchor investor, following Prime Minister Matteo Renzi's decision to quit.

The government, which is already the ailing bank's single largest shareholder with a four percent share, is planning do a debt-for-equity swap, and buy junior bonds held by ordinary Italians to take the stake up to 40%, the sources said. The bonds would then be equitized, converting the government's bond stake into pure equity ownership, a troubling approach as it would effectively wipe out the existing equity tranche and position the bank for a potential bankruptcy fight in court where the government faces off with the equity committee.

This transaction would make the government by far the biggest shareholder, meaning the Treasury would be able to control Italy's third biggest bank and its shareholder meetings, or in other words, the bank would be nationalized.

The sources said a government decree authorizing the deal, which would see the state buy the subordinated bonds from retail investors and convert them into shares, could be rushed through as early as this weekend. Italy's treasury would buy the bonds held by around 40,000 retail investors at face value, the sources said.

It is unclear how the senior bondholders, who would not be made whole would feel about a government transaction which favors the juniors (who would get par) where the bulk of the retail investors are found, would feel about such a transaction which would bring memories of the US government's "bailout" of GM which flipped the bankruptcy process on its head by prioritizing junior pensioners over senior creditors.

That way the transaction is structure, the government would ensure retail investors do not suffer any losses in the bank's bailout, making it politically more palatable and staving off the risk of a run on deposits that could trigger a wider banking crisis.

The bank, which needs to raise €5 billion by the end of December or risk winding down, is set to raise 1 billion euros from a bond swap with institutional investors and Rome is hoping the 2 billion euros participation from the government could help persuade private investors to fill the 2 billion euros gap. Since any new equity investors would come in as the equivalent of post-petition equity, it would mean that existing equityholders, already a token amount, would be wiped out.

"It's a de-facto nationalization with a strong presence by the state that can attract other investors and allow the transaction to be completed," said one of the sources, speaking on condition of anonymity.

There is another problem: in the past both Merkel and Schauble, not to mention Djisselbloem, have made it expressly clear that a bail-in mechanism should be used to preserve insolvent banks, and a state-funded and taxpayer backed bailout/nationalization is no longer permitted. Allowing Italy to proceed with this transaction would make a mockery of Europe's entire "bail-in" protocol, not to mention the European finance ministers' resolve and ability to implement anything, which is why the European Commission would need to assess whether the government's intervention is taking place at market prices or if it constitutes state aid, another source said.

However, since an Italian contagion wave would inevitably slam Deutsche Bank and Germany's various other banks, Europe will find the deal to be "whatever it needs it to be, to make it possible.

Monte dei Paschi, rated the weakest lender in European stress tests this summer, had planned to arrange a private rescue, starting with a firm commitment from one or more anchor investors and then launching a share sale this week.

There is still some hope for a private rescue without a government intervention, but that is evaporating by the hour.  According to Reuters, the chances of the privately backed deal going ahead as planned were now slim. A source close to Qatar's cash-rich sovereign wealth fund said it could inject €1.4 billion in the bank but wanted to wait to see what kind of government would succeed Renzi. Other sources were more cautious on Qatar's willingness to back the deal.

Monte Paschi's bank's chief executive, Marco Morelli, held talks with European Central Bank officials in Frankfurt on Tuesday to review its options. A meeting of the bank's board is likely to take place on Wednesday. At that point it is likely to greenlight the first major European bank bailout in a year in which the G-20 leader previously declared that the global economy is fixed and is now reflating itself back to growth.

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Cognitive Dissonance's picture

Nothing to see here. Move along. New stock market highs await you over there.

Hohum's picture

The sun will come out tomorrow!  Dow 20,000 is only a day away!

auricle's picture

Nationalize all the banks, write down all the debt, reopen them with a gold backed currency and start issuing debt free money. Screw these moneychangers and their bullshit ponzi scheme.

knukles's picture

The iiliquid bailing out the bankrupt for the oligarchs.

WayBehind's picture

So the oinly questions is the size of the "bail-in" for all depositiors ... 100% anyone?

wchild's picture

Oily 100% - yep, I'm in agreement...



nope-1004's picture


"Attract other investors"?

LMFAO.  That, my friends, is the definition of a ponzi.  When insolvent, manipulate financials in a way to attract more suckers to the party so incumbents can either get out or extend the farce.

Fucking EMBARRASSING to be alive these days.  Bankers are complete assholes.

FFS, they need to hang already!!!!

roddy6667's picture

If you think bankers are crooked you must be an anti-Semite.

f you think Wall Street is crooked, you must be an anti-Semite.

If you think the Neocons are leading America into needless wars of agression, you must be an anti-Semite.

sun tzu's picture

If you think slavery and mass murder through starvation are bad, you must be anti-semite

Haus-Targaryen's picture

How will this solve the Italian banking problems? 

Oh thats right ... it won't. It just kicks the can to another day. 

kliguy38's picture

Italian government starting to lube up its citizens for a Greekin' like they've never had before

Raffie's picture

Will be a Cyprus haircut. 

Just a little off the top.

Say %60....BUT you will get cool bank stock which in the next 100 years might be worth something.

wildbad's picture

"reopen them with a gold backed currency "

the easy way to become a millionaire overnight.

first, you get a million dollars... need to have gold to make that plan work and they aint got none. since '71 that has been the case. there could be a case made for issuing gummint fiat instead of criminal federal reserve fiat. that would still be debt based but coupled with deficit elimination might go some way to limiting the obvious evils of that morass...again

how about a fresh water based currency? or one backed by land ownership with a blockchain accounting trail?

Draybin Deffercon III's picture
Draybin Deffercon III (not verified) wildbad Dec 6, 2016 7:44 PM

Pass the old el Paschi...

RaceToTheBottom's picture

US WS banks should have been Nationalized, even the Chase with its Bankster jamie dimon.

Break them up into regional banks that don't speculate and pay the executives like middle managers of an electrical utility.

It will take 30-50 years to clean up the problems that bailing out banksters caused to American society.


Paul Kersey's picture

In the U.S., all the big banks failed, but the Federal Reserve, the U.S. Central Bank, gave them access to over $29 trillion. Now the banksters, who embezzled those banks into the ground, are billionaires. Italy has no central bank, and ECB only lends to banks that it can strangle later on.

Paul Kersey's picture

"BancaItalia is the Italian central bank"

True, but it is not, to my knowledge, a bank that can create euros, or even lira, out of thin air.

katagorikal's picture

It's trivial to create EUR out of thin air, just issue an Italian govt bond, then ...

  • Ask the Germans politely, activate the EFSM, so ECB monetizes directly.
  • Sell the bond to friendly companies, the companies issue bonds to raise the money, then the ECB buys the corporate bonds with existing QE. They are printing EUR 80bn/month, so EUR 2bn is just small change.
Stormtrooper's picture

And Dow 30,000 only a week behind tomorrow.


You don't become the world's oldest bank for no reason. 

small towel's picture


I said once that the Trump victory felt like the end of World War Three.

Allow me to be more specific, please.

World War 3 was Corporations verses Human-friendly people.

The battles have no geographic meaning. They're personal to those that do not have access.

Vaccines, GMO's, Sandy Hook are examples. Those who are in their later years, holding professional qualifications who dismissed these claims (like my father), And I will not forgive him for his dismissal of my 9/11, 7/7/ claims (under no circumstances) His people will not be remembered well.

My suggestion that he used his weight as as a significant and important member of the local community to influence others on these matters was thrown back in my face. That's why I have no respect for him, though I love him.

Power. All power.

They are the disposessed without knowing it. Today's useless idiots, poisonous idiots. Pizzagate is the modern day version of the Roman Emperor having sex with the newly wed or the first-born.

But let's not rock the fuckin boat. Hey.

We are castrated by social norms that decide these subjects unpalatable.

We need to change these norms, and, as we do, the country should become more liveable, just.



IridiumRebel's picture

"Some people should die, that's just unconscious knowledge."
Perry Farrel

Bopper09's picture

Fucking criminals

Bay of Pigs's picture

This should work out fine.

KittyKittyBangBang's picture

are yous that grumpy old fella from sliver docters ... .... i like you  .... you dont take no crap ...... good ffor you

MaxThrust's picture

MS5: once they form a government must dismantle this arrangement and cut MPS loose.

I form an image of a Person named Itally with a heavy sack of debt over their sholder trying to escape from a tidal wave of bankruptcy with the dead corspe of MPS shackled to his leg.

Northern Lights's picture

Nationalization...............what a nice way to call Communism.

Northern Lights's picture

If Italians had any heart, they'd have let this bank melt down.

Kaiser Sousa's picture

im sure this must be negative for the only 2 forms of Real Money held outside of the global banking system and that have ABSOLUTLEY NO COUNTER-PARTY RISKS...


Paper beats rock. That stupid fucking game we played as kids had a much deeper meaning that any of us knew at the time. 

Kaiser Sousa's picture

nah... u now its an illusion...

thats why they have undertaken such desperate and blatant attacks on the phony paper prices...

but the other major powers know whats up and where this is headed...

"While experts predict that gold prices will continue to slide in 2017, Russia and China are increasing their holdings of the precious metal at a growing pace. What lies behind this gold-buying spree?...

However, these prospects have not discouraged Russia and China from buying gold bullion at a steady pace. "He did it again. [Vladimir] Putin has bought gold. It wasn't he, personally, who bought it. Russia has bought gold. The issuing bank. And more than a little. 48 tons in one month. That is something. Moscow has obtained about 1.5 percent of its annual gold production," Nikolaus Jilch of Die Presse, an Austrian daily, wrote Monday.
  Pixabay Russian Sukhoi Log Gold Reserve Auction to Be Held Next Year "This was the largest Russia's gold purchase in almost 20 years," the Austrian journalist underscored, "Within 24 months, the Kremlin's gold reserves have grown by nearly 50 percent." Read more:

I hear you KS. Everything is a fukkin illusion without sound money. When Russia/China are ready to pull the plug, they will, but only if it benefits them.  I have a hard time seeing the price moving until then, except for down.

CHoward's picture

It IS a bail out by the people.  The money the government has for their share of the bank came from taxes which came from TAXPAYERS!!  Assholes.

HRH Feant's picture
HRH Feant (not verified) Dec 6, 2016 7:19 PM

Wow. That wasn't a surprise. Got a bail in? Bend over Italia!

peddling-fiction's picture

Mangus, show them how its done...

JailBanksters's picture

To Nationalize means to:

Take money out of your Wallet and give it to the Bank, so the Bank can loan your own money back to you for a Profit.

You sure this is how Capitalism Works, because it sounds like you can't have Capitalism without Capital and you can't have Capital without stealing it.



olebugger's picture

EUR will crash once this is announced. Draghi will print the money, new round of QE in Europe.

TNTARG's picture

Once again, socialization of losses while all the profit has been taken by the few.

Overdrawn's picture

One day................there will be a real Government, a peoples Government who will renationalise everything and not give a penny in compensation to the politicians billionaire cronies.   When was the last time you saw a poor politician?  They don't get paid that much when you think about it.

Miss Informed's picture

It can't happen here.

Bill Shockley's picture

Every bank in Europe will be nationalizwd before it is done.


This is just the beginning ya know.

Overdrawn's picture

They nationalised  Northern Rock Building Society in the UK to Richard Branson..  Taxpayer took the all the debt hit of 400 million.  It's wrong, it's theft, no other word for it.

BlueSulla's picture

Europe will find the deal to be "whatever it needs it to be, to make it possible".

Thatabout right for the EU, and from recent comments by EU Officials, that is what is being lined up. Kick the can so long as it can be made someone else's problem.


Kido's picture

meanwhile Australia just printed a big miss and negative GDP