The Italian Bank Run: Monte Paschi Capital Shortfall Surges 75% To €8.8Bn Due To "Rapid Liquidity Deterioration"

Tyler Durden's picture

While the big news last week was that Italy's third largest bank, Monte Paschi, had been nationalized after JPM destroyed the bank's chances of securing a private-sector rescue, and that Italy would issue up to €20 billion in public debt to fund the bailout of this, and other insolvent Italian banks, it appears there may be more moving parts to the story.

Recall that as we warned, the biggest danger for both Monte Paschi, and Italy's banking system in general, is that retail depositor confidence in the Siena bank is shaken enough to lead to a bank run either in the world's oldest bank, or worse, across the entire Italian banking sector, leading to a worst case probability outcome of falling bank dominoes as bank funding needs explode, resulting in even more deposit outflows, and so on in a toxic feedback loop.

To be sure, Monte Paschi's deposit run is hardly new, and as the bank itself admitted last week, it had already suffered roughly €14 billion in deposit outflows, or 11%, in the first nine months of the year as shown in the chart below.

It turns out that  the bank run not only continued but accelerated.

As Reuters reports this afternoon, the ECB has told Monte dei Paschi it needs to plug a capital shortfall of €8.8 billion, 76% greater than the previous €5 billion gap estimated by the bank, and which hole the entire recently failed bank recapitalization was aimed at plugging, the lender said on Monday.

Meanwhile, for those who missed the last few episodes in the dramatic third bailout, and nationalization, in as many years involving Monte Paschi, here is a recap from Reuters:

Last Friday the Italian government approved a decree to bail out Monte dei Paschi (BMPS.MI) after Italy's No. 3 lender failed to win investor backing for a desperately needed 5 billion euro capital increase. The bank said on Monday it had officially asked the ECB last Friday for go ahead for a "precautionary recapitalisation".


A precautionary recapitalisation is a type of state intervention in a struggling bank that is still solvent. It means only a modest bail-in of investors though the government can buy shares or bonds only on market terms endorsed by EU state aid officials in Brussels.

In its reply, the ECB said it had calculated the capital it believed the bank needed on the basis of a shortfall emerging from European stress test of large lenders earlier this year. In those tests Monte dei Paschi was the only Italian bank to come short under an adverse scenario.

The ECB said the lender was solvent but signaled the bank's liquidity position had rapidly deteriorated between the end of November and December 21, Monte dei Paschi said.

In other words, depositors yanked even more billions from the bank - a perfectly reasonable course of action in light of concerns about the bank's viability - which in turns has led to an even worse liquidity situation at Monte Paschi.

The Siena bank said that it "has quickly started talks with the competent authorities to understand the methodologies underlying the ECB's calculations and introduce the measures for a precautionary recapitalisation..."

The bank's problems date back several years but successive Italian governments have failed to tackle the issue, which became a political taboo this year with new EU rules banning state bailouts unless private investors take losses first. The European Commission said on Friday it would work with Rome to establish conditions were met for a bailout of Monte dei Paschi.

But on Monday ECB policymaker Jens Weidmann said plans for a state bailout of Monte dei Paschi should be weighed carefully as many questions remain to be answered. In an interview with Bild, the Bundesbank head said the bar should be high for government funds being used for bank as these are intended as last resort. He added that the planned Italian government measures can only be directed to banks that are healthy “in their core.” He also joined S&P in warning that the raised rescue funds may not serve to cover for foreseeable losses and that if government funds are used, there should be matching public funding because of Italy’s high government debt. There won't be as the whole point of the exercise is to avoid angering the public by impairing its investments.

Italy's market watchdog Consob said last week the bank's shares and securities would be suspended from trading until the conditions of a state bailout become clear.

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HRH Feant's picture
HRH Feant (not verified) Dec 26, 2016 6:53 PM

Empires and banks fail, given enough time and enough rope.

Manthong's picture

..hey… it’s only the third largest economy in the EU… what could possibly go wrong?


peddling-fiction's picture

"what could possibly go wrong?"

Everything. And that is the point to all of this.

Order out of Chaos, but again.

manofthenorth's picture

Going to get Modied and Maduroed.

Cash ban for the Euro in 3....2....1...

peddling-fiction's picture

Oh the hapless and innocent zombies are going to get hit hard.

Then there is this thorny issue of WWIII that is also written and will happen.

Manthong's picture

I was a real pessimist until last month..

I would have bet on the end and was digging real deep (seriously)  like really, really deep..    rebar,  concrete, steel blast door and the whole 9 yards.. actually moar like 100 cubic yards..

I was determined to survive the cockroaches. …

But the team in charge now seems to have a look to a good, cooperative future.

Let’s hope so.

.. at least the basement keeps a pretty constant 55 degrees.


.. happy New Year to all.    :-D


peddling-fiction's picture

I am a realist and know what these evil people are up to.

We have won a short reprieve.

Nothing more, nothing less.

Be strong and no fear.

Manthong's picture


cheer up….

Go to the range a blow off 100 rounds or so…

I still want the church at Sophia back.


And.. if I have to take a dirt nap, it was all in good time.

peddling-fiction's picture

I have never been happier, thanks to Sophia and Jesus Christ.

After the military I have not carried a gun, but would probably enjoy firing a couple of shots.

We need to fight for what we believe in.

Just lets not get duped. All wars are bankers wars, right?

Manthong's picture

"All wars are bankers wars..".

research how the bankers financed Trotsky and the Bolshevik revolution...

also how the HW got into the GHW Bush name..

..very revealing

peddling-fiction's picture

Already aware of that, but thanks for mentioning it for others.

NoDebt's picture

"After the military I have not carried a gun, but would probably enjoy firing a couple of shots."

It's a perishable skill.  

I once went 5 years (!!!!) without firing a shot from my handgun.  I went out and fired off a couple boxes of ammo at a friend's farm, at his invitation.  First shot I swear the bullet looped around and hit a tree behind me.  Next one I put out the porch light the next farm over.  Third shot I hit the dirt berm behind the target at least.  I felt like Clint Eastwood in 'Unforgiven' when he couldn't hit a can with his pistol no matter how hard he tried and finally, in desperation, grabbed the scatter gun to blow it off the fence post.

Couple magazines in I was right as rain again, but man, I never want to be that rusty again.


Manthong's picture

aw geez...

that is a stich....

Where can we buy the boomerang rounds for our liberal friends?

peddling-fiction's picture

You are right NoDebt.

But I believe I would start to shoot better than ever these days.

I was a pretty good shot with a Finnish AK-47 at 300 meters, no scope.


But I was the greatest shot with a Finnish machine gun.

Tightly packed shots at -30C at 300m meters (maybe I was frozen) Chuckle.

NoDebt's picture

"Tightly packed shots at -30C at 300m meters (maybe I was frozen) Chuckle."

Yeah, I hear you on that one.  They shoot real tight groups when they're frozen in place.  Not so good if the target moves from where the barrel is pointed, though.  

Go crack a few rounds off if you have a chance.  Feels better than revisiting your old home town and noticing how small everything seems.


peddling-fiction's picture

Chuckle, good one.

I was frozen, not the machine gun. At least not yet.

Anyways I digress, lets see if a Coronel I know here can get me shooting range time.

Manthong's picture

When I yank out the .50 everything gets warm.

,,but what really pisses me off is that I have seen a lot of video  of scumbag terrorists shooting full – auto cannon .23mm’s

Why the F can’t I have one???????


Manthong's picture

..not like it's Rome in the fourth century or so....

like what?? ... shave the edges off of the Dinars?

knukles's picture

"Well, that was quick!"

(maniacial laughter)

nmewn's picture

lol..."liquidity deterioration"...apparently that means something other than, cash, gold, clear title or diamonds ;-)

Manthong's picture


..unfortunately for the continent....

..they have a serious Pb and Cu shortage.

UnschooledAustrianEconomist's picture

Not in my gun safe. Plenty of it ready for trading.

Manthong's picture

gee.. I cannot afford a large enough safe.

.. just keep stacking in the bunker...

..just hope I never have a fire or take a direct hit.


but in a similar comment.. a good old friend actually bought a three ton stainless bank vault door. was so cool........


..but was even moar cool was that he moved it from his suburban Chicago property to his luxury beachfront in Florida.

UnschooledAustrianEconomist's picture

Jesus, your buddy and you are really up for the big deals. I'm impressed.

Merry Christmas and a bullish 2017 from Austria.

Manthong's picture guys might be in store for a good government soon.

you were robbed a little while ago.

Manthong's picture

actually, I am not really worried about a fire…

.the Halon suppression system should handle it.


UnschooledAustrianEconomist's picture

And don't you worry about the direct hit, either. From what I've red before they would need a bunker buster to smoke you out.

UnschooledAustrianEconomist's picture

I know, buddy, I know. Though I don't think the actual election was technically rigged, there was a media onslaught Goebbels would have been proud of. If you think US media was biased during your elections, you ain't seen nothing yet. And all for a lousy 53%....

BTW, for a deeper insight: You could compare the western Germans with the east coast snowflakes, whereas the Austrians are more of the Texas Redneck and West Virginia hillbilly kind. E.g. gun laws in Germany: repressive, Austria: roughly US style (I got a pistol, a rifle, a shotgun and could own a semi-automatic assault rifle).

4shzl's picture

As do currency unions.

gatorengineer's picture

When all you have to do is hit shift control + P, 3.8 billion euros is not a challenge.  

ZippyBananaPants's picture

Funny, I ate Italian last night and the runs something fierce! It was like opening a can of soup!

Manthong's picture

lose the tomatoes and eat moar thick white sauce.

peddling-fiction's picture

Dont give them pizza eater ideas.

Manthong's picture

wmbz's picture

"He added that the planned Italian government measures can only be directed to banks that are healthy “in their core.”

Right... so which would the healthy banks be? Thay are all rotten to their core!

FX223's picture

Suck it to anybody that has a significant amount of money in any bank in any country.  I did my bank run over 2 years ago and only keep enough in there to pay regular bills.  The rest sleeps with the fishes.

RIP depositors aka last creditors in line

Ajax_USB_Port_Repair_Service_'s picture

Ooops! Sorry. We're out of withdrawal slips and the money machines are out of order. Have a nice day!

Evan Wilson's picture

Don't forget that they stop answering the phones.


back to basics's picture

Why don't they give away some spiderman towels to lure new depositors? 

Farmerz's picture

Or maybe make a cool tv ad where snowmen are feeding carrots to horses?

Manthong's picture

"horse"  ..a while back I heard that was a popular meat staple over there..

but then again moar than a few in the British Parliment live on eating jackasses

Stormtrooper's picture

SDR, here we come!

peddling-fiction's picture

The Phoenix, then soon after.

Do you guys and gals think this will be achieved without a fight?

The conspiracy theorists have become realists.

Do we get a prize or something?

Do get to go and give paid speeches?

No, I do not think so.


youngman's picture

Funny how that works,,,when you find out the government is going to save you...the bad debts just seem to get higher and higher...why can probably still get a bonus at the end of the year if theirs enough cash floating around....its a standard Bankers move...hide the loss until its covered..then dump it all in for the grand finale...

MPJones's picture

No more tax payer bailouts: bankruptcy! This failed bank cries out for liquidation. Deleveraging is what is needed throughout the banking system, and those who cannot stand must be alloed to fall, TBTF or not.

wisehiney's picture

This would be good time to flee to the safety of treasury bonds.

UnschooledAustrianEconomist's picture

US or European? Just to make sure to be really on the safe side.