European Banking Bloodbath Spreads To Spain After Italy Fires €20 Billion "Bazooka" At €360 Billion Problem

Tyler Durden's picture

Total chaos reigns in European banking stocks this morning as Monte Paschi shares crash, soar, and plunge amid on-again, off-again bail-in, bail-out headlines (and stocks and bonds hit record lows). However, Italy is now not alone as Spanish banks are also bloodbathing following a European Court ruling on mortgage fraud went against them.

As's Michael Shedlock explains, bondholder bail-ins are on the way in Italy as private investors pulled the plug on a bank rescue. Rome plans a €20 billion bank bailout, but under eurozone rules junior bondholders have to take a hit.

Please consider Italy braces for Monte dei Paschi Rescue.

On Monday night, Italy’s finance minister Pier Carlo Padoan confirmed Italy is readying a €20bn rescue fund for MPS and other weak lenders as the chances of a successful €5bn private recapitalisation of the Siena-based bank recede.


By the evening of Thursday at the latest, it should be clear whether MPS, which was founded in 1472, will have been rescued by the private sector via a €4.5bn debt-for-equity swap and funds from anchor investors including the Qatar Investment Authority. As of Monday only €200m had been committed to the swap, suggesting the chances of pulling off the rescue are slim, said people close to the deal.


MPS’s debt-for-equity swap will close at 2pm Italian time on Wednesday. If it goes badly MPS could already ask the government to step in, said one Italian official.


According to an Italian official only about €2bn of the €20bn will be used for liquidity guarantees, and the rest for recapitalisations and for compensating some retail bondholders. Other banks will be rescued on a case-by-case basis over the coming months now that Italy has its “bazooka”. The €20bn rescue fund will abide by EU rules on so-called burden-sharing, which force losses on junior bondholders.


Italy’s banks currently have one of the highest problem loan ratios in Europe at 16.4 per cent of total loans, more than three times the European average of 5.4 per cent, according to Moody’s Investors Services and data from the European Banking Authority.


Nicolas Véron, an economist and senior fellow at Brussels think-tank Bruegel, argues that “assuming reasonable competent handling, the entire Italian bank system may reach an adequate level capitalisation to allow it to start working out its bad loans by the summer of 2017”.


Adding to confidence, UniCredit, Italy’s only globally significant bank, is expected be able to raise €13bn in new capital on the private market next year, say investors.


Bankers say reforming a fragmented system, of more than 500 banks, with weak profitability requires deep cuts of between 50,000 and 150,000 jobs by some estimates.

Bail-ins Coming, Expect More

Italian officials and bankers argue a capital injection of €20 billion will be sufficient to stem concerns about Italy’s banks by allowing adequate provisions for bad loans weighing on its economic recovery.

Mish Take

I scoff at the notion €20 billion will come close to curing the problem. Italy’s banks have a combined €360 billion of nonperforming loans that they admit to.


It takes quite a stretch of the imagination to presume €20 billion “bazooka” will plug a €360 billion hole. To do so would require an unbelievable recovery rate on those nonperforming loans.


€20 billion will not be enough. Heck, €120 billion is probably not enough. And on top of it all, between 50,000 and 150,000 job cuts are coming.


Has anyone asked “How those 50,000 to 150,000 will pay their bills?”

For now the pain remains in BMPS with Unicredit and Sanpaolo 'stable'...


And BMPS bonds have collapsed to record lows... pricing in a major haircut/bail-in...


But it's not just Italy, Bloomberg reports that Spanish banking stocks fall after the European Court of Justice ruled that the May 2013 cut-off point for unfair home mortgage payment reimbursements is illegal.

Borrowers who paid too much interest on home loans pre-dating a May 2013 Spanish ruling on so-called mortgage floors are entitled to a refund from their banks, judges at the EU Court of Justice ruled in Luxembourg Wednesday.


The court said that a proposed time limit on the refunds is illegal and customers shouldn’t be bound by such unfair terms. Banco Sabadell SA fell as much as 7.5 percent, while Banco Popular slipped as much as 10.5 percent, the largest decliner in Spain’s Ibex 35 benchmark.


"This comes as a surprise and in a bad moment for Spanish banks as most of them would have to make extra provisions to pay for this,” Daragh Quinn, an analyst at Keefe Bruyette & Woods, said by phone. "It will mean pressure on capital generation and profits in the fourth quarter."


The EU court case comes as Spanish banks are under pressure from low interest rates and weak demand for credit, affecting their traditional business of lending. With 521 billion euros, home loans are one of the largest parts of Spanish bank lending business as they grew their real estate exposure during a construction boom in the country that burst at the end of the last decade. Some banks are still making provisions for bad loans, which also adds pressure to profit.

Banco Popular Espanol shares fall 7%, Caixabank 3.2% and Banco de Sabadell 3.4%. Santander falls 1.25% and Bankinter by just 0.1%.

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Cognitive Dissonance's picture

The ECB to all EU banks. "I've got your six dude. To hell with Germany." /sarc

JungleCat's picture

Draghi will make it all go away.

CPL's picture

Still don't understand how that guy has a job.

KimAsa's picture

Can't print your way out. Can't bail-in your way out. Either way will cause a currency crisis. It will collapse, plain and simple.

1777's picture

That's why they will inflate and inflate, its the only course if action!

TheVoicesInYourHead's picture

"Bloodbaths" appear to be bullish for markets. DAX FTSE CAC and USA futures all stable.

buzzsaw99's picture

just bad bank the bad loans and take a fucking bonus. wtf is wrong with these people?

HokumYTrader's picture
HokumYTrader (not verified) Dec 21, 2016 8:40 AM

Don't worry Mario's got a big pizza pie for everybody!

Yukon Cornholius's picture

Is that pizza pizza or podesta pizza?

MoreMises's picture

This is very bearish for gold.

Latitude25's picture

No escape for the masses of sheep.  YOU WILL be penniless and grovel like an Indian.

HokumYTrader's picture
HokumYTrader (not verified) Dec 21, 2016 8:47 AM

Why can't the Italians just use Goldman Sachs for their banking needs like everyone else, based on Goldman's share price.


Wells Fargo is a second choice.

silverer's picture

I just changed my underwear. Thanks.

HokumYTrader's picture
HokumYTrader (not verified) Dec 21, 2016 8:55 AM

20,000 is self fullfilling.


As everyone on CNBS says, we need it to draw in the individual investors.

bookofenoch's picture

That runs chills down my spine

Mr. Bones's picture

Question: if I were going to Italy for the next few months, what do I pack to ensure my stay is currency-crisis-proof? 

HokumYTrader's picture
HokumYTrader (not verified) Mr. Bones Dec 21, 2016 8:56 AM

An AK-47

silverer's picture

Well, in the short term, probably US dollars. Or get a GoldMoney account opened (either personal or business). Put $1000. or so in it for your trip. If gold goes through the roof, so does your gold in your GoldMoney account, as it is physical gold you own in a private vault. You can get a MasterCard credit or debit card to draw from that account and the cards can be used in ATM's. If there is no cash, then you can transact in the local currency using your credit card. The gold will automatically follow any serious problem that occurs, and you can enjoy your trip.

Latitude25's picture

So junior bondholders will take a hit.  I'll assume that depositors will be converted to junior bondholders.

SoDamnMad's picture

I always wonder if certain types of European CDs are in fact, bonds.  I ran one of my old certificates through a translator and they sure sound like a bond.

HokumYTrader's picture
HokumYTrader (not verified) Dec 21, 2016 9:04 AM

Dont worry we will hammer vix to 9.


-Your friendly Algo from GS

Ajax_USB_Port_Repair_Service_'s picture

VIX says: "Everything is just fine"

bookofenoch's picture

MOAR printing for MOAR bailouts!! Print till you can no longer print. Another round of currency debasement is on the way.

shamus001's picture

Spanish banks having difficulty paying BACK excessive interest? When you get $ for free (in EU's case, they pay you to take $), and lend it out at +4-17% interest and STILL face insolvency crisis, your business model is CORRUPT & WASTEFUL.

The sooner these fat, greasy, global banks go under, the sooner the world can return to normal market prices, true unmanipulated market values, traditional lending with prison sentances for co-mingling savings accounts with trading accounts, and sit back with a nice, stable, boring, yet RELIABLE market!

Van_Helsing's picture

But inflation is what they want by design isn't it? Till the Euro and Dollar are at par with the Yuan or an acceptable ratio to make the Western economies competitive! Screw your decadent lifestyles infidels, we will be levelling the playing field via debt issuance to toilet paper.

Fireman's picture

Onward to the the co££ap$€ of Pentacon protected worthless fiat filth and the execution of the banksters and political whores that peddle it!

gregga777's picture

The banking gangsters business model is exclusively a criminal one. Criminal activities are rampant throughout such as money laundering for drug cartels and terrorist organizations, selling assets they don't actually own multiple times, illegally crushing entrepreneurs to confiscate their businesses, illegally foreclosing on homes when they don't own the mortgages and many many more. But, they are allowed to continue their criminal enterprises because of their pivotal role in funneling bribes to the political parasites.

angry_dad's picture
angry_dad (not verified) gregga777 Dec 21, 2016 12:01 PM

One has to wonder how much involvement the vatican bank has in this debacle

gregga777's picture

Don't whine that you weren't warned!!!

The Con Street Swindlers are going to vaporize your IRAs and 401(k)'s. The banking gangsters are going to bail-in your deposits to cover the losses from their criminal enterprises. The government is going to demonetize their worthless fiat currencies. But, with the assistance of the government's armed goons your creditors are still going to insist that YOU pay up.

If you don't have physical possession of your assets—fiat toilet paper is not YOUR asset—you've got NOTHING!!!

Everyone has been warned. Almost everyone complacently trusts the lying, thieving government. It's all going to end very very badly.

angry_dad's picture
angry_dad (not verified) Dec 21, 2016 11:59 AM

everybody loves italian stuff;

Italian babes +10

Italian food +10

Italian sports cars +10

The central banks have lots of Italian assets to foreclose +10

Its deja-vu all over again, just like the Greeks

watch the italians find a new way to transfer more angry syrians into western europe to repay the central bankers who engineered this collapse

"Now go do that voo doo that you do so well"!!!!

assistedliving's picture


scoutshonor's picture

..."this comes as a surprise and in a bad moment for Spanish banks"...

Brilliant strategy that.  I'm getting geared up for my annual ass raping by the IRS, perhaps a letter:

Hey, ya know, this comes at a really bad time for me--hard on the heels of the holiday season and all.    And really who could possibly have anticipated such a thing as taxes coming due?  Perhaps we could just nationalize my tax liability?

I'm confident they will be most understanding.

Jtrillian's picture

When faced with insolvency, systemic risk, and collapse, banksters will ALWAYS kick the can... until they can't. 

hedgiex's picture

A Season of Joy for EU . Fireworks (contagion) to welcome in 2017 markets ?