Here’s Why Italy’s Banking Crisis Has Gone Off The Radar

Tyler Durden's picture

Authored by Don Quijones, Spain & Mexico, editor at Wolf Street

Here’s Why Italy’s Banking Crisis Has Gone Off the Radar

For a country that is on the brink of a gargantuan public bailout of its toxic-loan riddled banking sector, or failing that, a full-blown financial crisis that could bring down the European financial system, things are eerily quiet in Italy these days. It’s almost as if the more serious the crisis gets, the less we hear about it — otherwise, investors and voters might get spooked. And elections are coming up.

But an article published in the financial section of Italian daily Il Sole lays out just how serious the situation has become. According to new research by Italian investment bank Mediobanca, 114 of the close to 500 banks in Italy have “Texas Ratios” of over 100%. The Texas Ratio, or TR, is calculated by dividing the total value of a bank’s non-performing loans by its tangible book value plus reserves — or as American money manager Steve Eisman put it, “all the bad stuff divided by the money you have to pay for all the bad stuff.”

If the TR is over 100%, the bank doesn’t have enough money “pay for all the bad stuff.” Hence, banks tend to fail when the ratio surpasses 100%. In Italy there are 114 of them. Of them, 24 have ratios of over 200%.

Granted, many of the banks in question are small local or regional savings banks with tens or hundreds of millions of euros in assets. These are not systemically important institutions and can be resolved without causing disturbances to the broader system. But the list also includes many of Italy’s biggest banks which certainly are systemically important to Italy, some of which have Texas Ratios of over 200%. Top of the list, predictably, is Monte dei Paschi di Siena, with €169 billion in assets and a TR of 269%.

Next up is Veneto Banca, with €33 billion in assets and a TR of 239%. This is the bank that, together with Banco Popolare di Vicenza (assets: €39 billion, TR: 210%), was supposed to have been saved last year by an intervention from government-sponsored, privately funded bank bailout fund Atlante, but which now urgently requires more public funds. Their combined assets place them seventh on the list of Italy’s largest banks.

Some experts, including the U.S. bank hired last year to save MPS, JP Morgan Chase, have warned that Popolare di Vicenza and Veneto Banca will not be eligible for a bailout since they are not regarded as systemically important enough. This prompted investors to remove funds from the banks, further exacerbating their financial woes. According to sources in Rome, the two banks’ failure would send shock waves through the wider Italian financial industry.

There are other major Italian banks with Texas Ratios well in excess of 100%. They include:

  • Banco Popolare (the offspring of a merger of Banco Popolare di Verona e Novara and Banca Popolare Italiana in 2017 and then a subsequent merger with Banca Popolare di Milano on 1 January 2017): €120 billion in assets; TR: 217%.
  • UBI Banca: €117 billion in assets; TR: 117%
  • Banca Nazionale del Lavoro: €77 billion in assets; TR: 113%
  • Banco Popolare Dell’ Emilia Romagna: €61 billion in assets; TR: 140%
  • Banca Carige: €30 billion in assets; TR: 165%
  • Unipol Banca: €11 billion in assets; TR: 380%

In sum, almost all of Italy’s largest banking groups, with the exception of Unicredit, Intesa Sao Paolo and Mediobanca itself, have Texas Ratios well in excess of 100%.

But, as Eisman recently pointed out, the two largest banks, Unicredit and Intesa Sanpaolo, have TRs of over 90%. As long as the other banks continue to languish in their current zombified state, they will continue to drag down the two bigger banks. And if either Unicredit or Intesa begin to wobble, the bets are off.

To stay on the right side of the solvency threshold, Unicredit has already had to raise €13 billion of new capital this year and last week it took advantage of the ECB’s latest splurge of charitable lending (formally known as TLTRO II) to borrow €24 billion of free money. But as long as the financial health of the banks all around it continues to deteriorate, staying upright is going to be a tough order.

This is where things get complicated. In order to qualify for public assistance, banks must be solvent. Presumably, that would automatically disqualify any bank with a Texas Ratio of over 150%, which includes MPS, Banco Popolare, Popolare di Vicenza, Veneto Banca, Banca Carige and Unipol Banca. The bailout must also comply with current EU regulations including the Bank Recovery and Resolution Directive of Jan 1, 2016, which specifically mandates that before public funds are injected into a bank, shareholders and creditors must be bailed in for a minimum amount of 8% of total liabilities, as famously happened in the rescue of Cyprus’ banking system in 2013.

The Italian government knows that this approach could end up wiping out retail investors (otherwise known as voters) who were missold, in many cases fraudulently, subordinated bonds by cash-hungry banks in the wake of the last crisis, in turn wiping out the government’s votes. To avoid such an outcome, the government has proposed compensating those retail bondholders with public funds, just as the Spanish government did with the holders of preferente bonds. Which, of course, is in direct contravention of EU laws.

So far, the European Commission has stayed silent on the issue, presumably in the hope that the resolution of Italy’s financial sector can be held off until at least after the French elections in late April, if not the German elections in September. Then, if those elections go Brussels’ way, a continent-wide taxpayer funded bailout of banks’ NPLs can be unleashed, as already requested by ECB Vice President Vitor Constancio and European Banking Authority President Andrea Enria.

With no guarantee that Italy’s NPL-infested banks can hold out that long, it’s a dangerous waiting-and-hoping game. In the meantime, shhhhhhhh… By Don Quijones.

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small towel's picture

It is starting to become visible that democracy is a gift of the bankers choosing.

Lore's picture

Simple solution. Stop issuing bad debt. Otherwise, shut the doors and throw your executives in jail.

Ghordius's picture

it is very simple, yes. you just need to know... the future

classic, retail banking is about giving loans, i.e. credit. to individuals, to companies, etc.

there are various methods on how to decide which eager wanna-be debtor is likely to repay and which isn't

but the harsh truth behind banking is two-fold:

- those methods take for granted that some will not. like shopping malls taking for granted that some stuff will be stolen, and that is part of the very price they ask for their wares

- most governments (and, by extension, CBs) push, for political reasons, for this or that group to be favoured. beyond economic reason

example: US Presidents pushing for "everybody ought to own a home". result: US-Sub-Prime Crisis

another, more pertinent here: local politicians sitting in the boards of local banks owned by the local municipalities or whatever that favour their political friends, particularly those who help win elections

walküre's picture

those that need or want loans, don't get them

those that don't need loans, don't want them

too much liquidity in the system everywhere

nothing makes sense valuation wise

Paul Morphy's picture

"A bank is a place where they lend you an umbrella in fair weather and ask for it back when it begins to rain."

Buck Johnson's picture

You explained it very well how the process is and why things get out of control.


Jubal Early's picture

"classic, retail banking is about giving loans, i.e. credit. to individuals, to companies, etc."

And that is exactly what the ECB is NOT about.  After turning a blind eye on all of Europe, not even Germany, not meeting thier 3% deficit targets, and especially ignoring the GS shenanigans with Greece and Italy, the EU-tyrants in Brussels formed the ECB and the Euro anyway.  Why? so they could chain all the members to the EU and guarantee that the slave states became ever more debt slaves.

Now we have Italy, Greece, Spain and Portugaly hopelessly over their heads in debt, just where the yid loan sharks in Brussels and Frankfurt wanted them. These people are now watching their national wealth being stripp mined by the same groups of people that did it to the Germans during Weimar.

But even more disgusting is how the ECB with all it LTRO's and money printing just conspired with thier yid controlled banks to further enslave these poor citizens by bailing out these banks with additional loans strapped to the peoples backs.  It is usury at its worst even after 2000 years of it history.

One poster here at ZH loves to ignore what is going on and why is claiming that the for their own best interest the people must ignore the deliberate invasion of Arabs and Africans which by pure cooincidence perfectly fills the goals of the Protocols and the Kalergi Couhdrovve plan, which he of course claims are forgeries.

Ghordius's picture

because it's not it's job

read again: I described retail banking, not central/national banking

further, it's not the ECB's job to go after governments not meeting their deficit targets

this article is about small banks in Italy, and no, even there, it's not the ECB's job to regulate small banks, only the "top 100"

Jubal Early's picture

"because it's not it's job"

when the Europarasites were conning Europe into thinking that their central bank was going to bring them prosperity their were loads of lies spread around about how responsible bankers they were going to be.  They insisted "that is their job"

Of course, once they achieved power, the velvet gloves came off and it changed to "whatever it takes", "ltro's", trillions in stolen inflated money handed out the their crony banks, destroyed pension plans through ZIRP and now NIRP, astronomical youth unemployment, and a destroyed and cowed Greece, Cyprus, Portugal and Italy.

Its patently clear:  the ECB is not a yid shyster usury mafia like the Fed.  No, No, No, they are good bankers.  /sarc

GreatUncle's picture

Ghordius with all this free money being lent only thing I want to know is "when is it going to be paid back".

As soon as you take the artifical liquidity out of the system it will contract.

all-priced-in's picture

Try explaining this in a near zero interest rate environment.


I was the CFO for a large finance company - we priced our loans knowing some would go bad - but the extra rate built in to all loans covered the losses -


That is hard to do when rates are this low.







philipat's picture

It's noteworthy that the concept of letting Banks (And Bankers) fail and go bankrupt or go to jail (without passing Go!) never even enters the rhetoric. Nothing has changed!! Banks, just like other poorly managed and operated businesses MUST be allowed to fsil if we are ever to get back to any type of normality and efficient allocation of capital. But I'm not holding my breath with the totally corrupt and broken political systems we have.

CHX13's picture

Back to the old normal is mathematically impossible without major defaults. The new normal is extend (the debt) and pretend that everything is normal, while it is not. They are trying to paper over and hold back an ever increasing amount of debt which on the other side are our (devalued) fiat currencies. The system is broken and FUBAR yet it still goes on, for now at least, until off of a sudden quite "unexpected" something big will burst... tick tock tick tock  

Ghordius's picture

yes, valid point

but with differences in various countries. this article is about Italian banks. now, in Italy but also in France and many other continental european countries, we witnessed police raids in banks (and even in rating agencies's offices!) whenever a public prosecutor got even one whiff of a whistle-blower's presence. something was done

but let's stay, for comfort, in the English-speaking world. the UK did put bankers in jail. yes, some, only

how many US bankers? in New York or... in London? you know how many American bankers populate the "Square Mile", don't you? did you ever get a whiff of the scandal on how HR-agencies in London recruited them? a small hint: they look for... "personalities fit for banking". the methods they used are remarkably similar to those used by psychologists in order to diagnose...

... well, look it up. better this way

Jubal Early's picture

"whenever a public prosecutor got even one whiff of a whistle-blower's presence."

What a joke, no one but you believes the blather you write.   You must sit around whiffing you own stinky farts while claiming it is EU-perfume too.

notRobot's picture

I am no fan of EU, but Ghordius' facts are right. Look, I find the dicta from Belgium to be as oppressively paternalistic and international-bank-enabling as the fed haters on this board. But the insidious evil of our banking and political systems is because they have spawned complex institutions that many subjects/citizens seem to like and enjoy substantive benefits from. I, too, have seen the European banking system as on-the-brink since 2008. I moved my family out of large US metro in part anticipating banking system failure. But despite all the lies used to perpetuate itself, it should amaze us critics, draw our scrutiny and study, to notice how subtly complex the evil institutions are. They seduce many of our fellow countrymen, many who grow vegetables, have strong family ties in Italy (e.g., conservative family values that US Orange-Jesus-lovers would respect). I also understand my felly US-ians who want it to crumble fast so that we may rebuild something based on better value signaling, price discovery, etc., than current fraud-opoly. EU-haters should read Ghordius carefully and appreciate the important facts he brings to the table, especially the idea that many reasonable people are seduced into becoming complicit in perpetuating the Japan model of zombie banks, accounting fraud, propoganda, wars and worse. EU has avoided violence and enabled a generations to log lots of laid back hours in coffee shops and nightclub enjoying. It makes the evil of the current instiutional framework MORE interesting to acknowledge how it seduces by providing some bonafides of the good life--withut autonomy and freedom that many of us on this board crave, however. Heed Ghordius' facts.

Teja's picture

I don't see why this is about Italian banks only. If there is a wave of bank defaults in Italy, I am pretty sure there will be a major impact to banks in other European countries. Italy is much less isolated from the rest of the continent than Cyprus or Greece are. Also, people in countries like Portugal or France would watch the bail-in in Italy and act accordingly.

Just compare the economy sizes of Italy vs Greece or Cyprus.

Also, I do not believe it is criminal behaviour of bankers which is the main problem in Italy. The issue is economic stagnation, many Italian companies going through a difficult phase because they are too small to be competitive, and the larger ones probably too sclerotic. The administration does not help, either, being extremely slow - for a lawsuit to complete, 10 years often are not enough.

CHX13's picture

How is that saying again, somthing like "If you owe the bank 1000€ it's your problem; if you owe the bank a 1000^3 €, it's their problem" ...?

Ghordius's picture

well, I just love when a financial press bent on pushing the market in one direction or the other whips out things like "Texas Ratios"

frankly, it draws a yawn out of me

any ratio, any way used by American banking analysts for US banks, when applied to european banks, give danger signals

the reason is so frigging simple that even the average home-owner can understand: mortgages

in Europe, they stay on the bank's balance sheets. in the US, they are generally packaged and sold away. as "securities". remember the "US-Sub-Prime Crisis"?

no, I am not saying that those small Italian banks are solid, or anything. I am just hinting at how often differences between banking systems are exploited for a cheap shot

back to basics's picture

The only thing that makes me yawn on here is seeing yet another "I love the EU and the euro" post by you. Seriously, mate, I hope you are one of those 10,000 Brussels based faceless eurocrats and at least make some money out of your devotion to the currency the destroyed Europe otherwise you are even more hollow than I thought. 

Ghordius's picture

and good morning to you, too, back to basics

for the record, I neither love the EU nor I love the EUR, nor I am what you suggest

I just witness that a lot of people hate... while actually not knowing much about what they hate. which I find puzzling, then I really want to know as much as possible about everything I spend so much emotional effort to either love or hate

so here I am, offering information about what you seem to have so near to your heart, and the chance of a debate

do you have an argument for that "the currency that destroyed Europe"? then share it. is it neo-Keynesian or Austrian? is it pro-federalism or pro-sovereignty?

here, for you, my recent defense of Mr. Juncker, Our Chief Drunkard of the EU Commission. I'd bet you hate him too, but do you know much about him?

rex-lacrymarum's picture

Back when the whole world used gold as money, it was never a problem that everybody had essentially the same currency. The "euro problem" needs to be reframed. It is not at all a problem that a bunch of countries use the same currency - in fact, that is quite a boon, it saves billions in transaction costs every year. The problem is that the euro is just another fiat currency and that the banking systems of Europe are fractionally reserved. In other words, both commercial banks and the central bank can, and do, incessantly create mountains of money ex nihilo. 

Singelguy's picture

One of two things is certain.
1. The EU banking system collapses.
2. There will be a massive bail out / bail in which will wipe out savings and substantially devaluie the euro which will drag the EU into a deep recession.
Pick your poison.

Ghordius's picture

certain? Japan actually demonstrated that you can have a third option: "zombie banks" "lurking on"

remember how there was a very popular hedge-fund manager featuring ZH articles with his mantra "Japan is a bug in search of a windshield"? well, didn't he... give up his bets, later?

there is a third poison available, imo

Jubal Early's picture

Once again you are in your EU bubble.  First of all most of those mortgages are short term, like 5 years with variable interest rates.  During the US sub-prime debacle they called them "teaser rates".  Across Europe these loans are ticking time bombs since the EU-yid-bankers have driven the rates to NEGATIVE in Germany and absurdly low in Italy.  Again, just like Weimar, when the rates rise just a little it will have an immediate effect, house prices will crash, the goyim will not be able to make the payments, and the European people will get to watch the EU elites in Brussels and the yids that they sold out their peoples to pick up all the property worth owning at cents to the Euro.  That is their plan anyway.  

notRobot's picture

Jubal Early, I think you and I want to see many similar upheavals leading to improved banking+finance+life system. Does anyone on here know what fraction of EU mortgages are variable? Is it like OZ and NZ and Canada where most mortgages go variables after 1 to 3 years? I think our shared criticisms benefit from aknowledging that Ghordius' facts about how well the zombie bank system in Europe keeps trucking along. Most people (not ZH-ers) are not so unhappy with their banks as we are. We should be honest about that, shouldn't we? It's a profound part of the challenge we face.

im-a-nut-job's picture

Italy needs more gangsters problemo solved.

notRobot's picture

as organic, volunteerist, social-benefit-providing provider of contract-enforcement services, yeah, you're probably right that they may be more enlightened-self-interested and less controling/dishonest/corrupt than the Brussels pols. Maybe if the local mafias competed to provide improved governance/contract-enforcement technology, then a Teibout competition process would reinforce anarchic good governance and resources would flow away from sociopathic controllers. Is that what we anarcho-capitalists want to see?

MPJones's picture

It is time for the banksters to pay for their sinful lives: let the insolvent banks go bust and strip those responsible of their ill-begotten loot. That is the only way to get back to a correctly functioning financial sector and stop the rampant malinvestment caused by government interference. Allow the market to work!

rf80412's picture

Andrew Mellon's wet dream: where if we would only let everything crash hard enough and deep enough, the economy will be reborn from its own ashes like a glorious phoenix.

It's a beautiful idea but I just don't think it would work.  At the very least it would only let the rich buy up even more of the economy at fire sale prices, while destroying what little wealth most people actually have.  At worst, it would lead to complete social breakdown.  FDR told Mellon and his sadistic moralizing to take a hike because he thought the result of letting the Depression drag on until it magically fixed itself would be either communism or fascism, not a libertarian paradise.

rex-lacrymarum's picture

And then he instituted the policies that made the depression drag on and on...   In the 1921 recession, prices fell harder and unemployment spiked higher than in the initial phase of what was made into the Great Depression by the Hoover and FDR. The difference was that the government adopted a hands-off approach in 1921 and alllowed the markets to work. 

Sirius Wonderblast's picture

Funny innit - you only qualify for assistance when you don't need it, the moment you need it you don't qualify. That is so EU it is almost funny.

Meanwhile, Brexit lurches into gear.

Ghordius's picture

"That is so EU it is almost funny"

indeed, it is. and it's a typical crisis of relatively small banks, in the proper historical perspective

one that for all practical purposes won't happen so easily in the US, because small banks... are mostly gone

the first big crisis was the S&L Crisis, and meanwhile, if memory does not betray me, some 6'000 small US banks do not exist anymore

cue in our dear Mr. Draghi recently trolling that "perhaps the eurozone has too many banks"

meanwhile, Brexit, yes. cue in what the resident megabankers of the Square Mile are saying about that. you know what they are saying, do you?

Batman11's picture

There is no money we need to implement austerity.

Wait a minute I've just found a trillion down the back of the sofa to bailout the banksters.

Austerity and bankster bailouts are a toxic mix.


rf80412's picture

Especially when the bailed out banks don't lend like they're supposed to.  Government spending is slashed, but the private sector doesn't pick up the slack.  The result is a lot of economic activity just disappearing, which is bad for tax revenues to service sovereign debt, bad for business, and bad for the voters.

As a bonus, if the central banks do QE at the same time, you get deep recession plus asset price bubbles.

Let it Go's picture

Time may be running out for the Euro-zone, is it time to throw in the towel? For years this poorly constructed union has been criticized for being unable to resolve difficult issues but rather kicking the can down the road, postponing and delay have become the standard operation procedure for which they are known.

Euro-zone banks are neither "fixed" or the system healthy. The Greek economy remains an issue. Italy is deeply in debt, unemployment is high in many countries especially among the youth, and refugees continue to flood in adding more stress to an overburdened social system. Now the people of both France and Germany are indicating they may of had enough. The article below delves into these problems.

notRobot's picture

Bruce, I'm sure we'd have lots in common and fun over drinks someday, but god damn it, your advertising schlocks up the threads. I read nearly every one of your comments for more than a year before I finally figured out it was a marketing tactic more than honestly directed at the topic, the article, other commenters, or even an original observation. It's noise and devalues all the valuable stuff you have to offer when you put gauze mesh over your ears in a converation and forcefeed links with a pretend tie-in. Could you comment unlinked for a while? Then if you see a place where the good material you've written makes some sense, then I'll start paying attention againg. Guaze over my ears...wanting to take it off.

Herdee's picture

And the Fed traded Dollars for Euros on their swap lines. Suckers. U.S. taxpayers on the hook again courtesy of a gang of fuckin' crooks.

rex-lacrymarum's picture

Since both the dollars and the euros in these transactions were literally created from thin air, I don't see what the problem is...

CRM114's picture

It would seem pertinent to ask, when considering knock-on consequences, just how the Non-Performing Loans of MPS, etc, are made up.

Are they to people, for mortagages or loans, secured or unsecured? To businesses, domestic or foreign (and if so,where)?

What's the breakdown, anyone know?

Can these loans be effectively removed or delayed by some other means available to Government/ECB, etc? because I'll bet that's being worked on as we speak by the Government if they are.

rex-lacrymarum's picture

Most of them are domestic loans, and I would bet, business loans and mortgages mainly. There is a very Italy-specific problem with these NPLs though, which has so far proved a major obstacle in selling them. It takes an average of 8 years for the entire legal procedure that ends with recovery of whatever assets have been pledged as collateral to wind its way through the courts. You can probably see in what multitude of ways that is problematic. Italian NPLs are really majorly hot potatoes. And at last count they added up to €360 billion.