Italy Bans Short-Selling Of Imploding Monte Paschi

Having collapsed 99.7% from its July 2007 highs at EUR93, Banca Monte dei Paschi Siena - Italy's 3rd largest bank - is in dire straits. And in confirmation that the fecal matter is about to strike a rotating object, Italian regulators just 'temporarily' banned short-selling of BMPS stock. Of course, with various other derivatives available to 'hedgers' or those dastardly speculators (note - 5Y Sub CDS at 1633bps, record highs), the pressure is anything but lifted. In fact, this likely puts more pressure on its peers.

Yep short-sale ban will fix that!

Statement via Consob:

Consob adopts a temporary ban on short selling on Banca Monte dei Paschi di Siena spa shares. The ban shall apply for the entire trading day of Wednesday  6 July 2016

 

Consob decided to temporary prohibit short sales on Banca Monte dei Paschi di Siena shares - BMPS (ISIN code IT0005092165).

 

The ban will be enforce for the entire trading session of tomorrow, Wednesday 6 July 2016, on the MTA market of Borsa Italiana.

 

The prohibition was adopted pursuant to Article 23 of the EU Regulation on short selling, considering the negative price change recorded by the share.

 

The prohibition applies to short sales backed by stock lending. This extends the scope of the prohibition of naked short selling, already in force for all shares from 1st November 2012  in accordance with the abovementioned EU Regulation.

 

The text of the Resolution 19653 of 5 July 2016 is available on the websitehttp://www.consob.it/mainen/index.html.

Rome, 5 July 2016

So that explains why everyone piled into CDS today... implying a 67% chance of default

 

As we noted previously, the problem is that as of this moment, Rome finds itself in a lose-lose situation:

 
 

With investors pummeling its shares this year, UniCredit ousted its chief executive, Federico Ghizzoni. Last week, with its stock falling, it rushed to appoint a new CEO, Jean-Pierre Mustier, its former head of corporate and investment banking. In short order, Mr. Mustier must now present a convincing restructuring plan and raise as much as €9 billion to shore up investor confidence. UniCredit declined to comment. The Italian government pushed for a broad solution that would recapitalize banks and draw a line under the bad-loans crisis, when it appealed to the EU for permission to inject €40 billion into the lenders. The Italian government argues that without such a recapitalization move, Italy’s banking problems could mushroom into a broader crisis.

 

“There is an epidemic, and Italy is the patient that is sickest,” said Pierpaolo Baretta, an undersecretary at the Italian Economy Ministry. If “we don’t stop the epidemic, it will become everybody’s problem…The shock of Brexit has created a sense of urgency.”Italian Prime Minister Matteo Renzi pressed the issue in his meeting last week with German Chancellor Angela Merkel.

 

The European Commission, with strong backing from Berlin, has dismissed the push from the Italians. Some European officials privately expressed annoyance that Rome has been slow to deal with its banking problem and is paying the price in such volatile markets. Now, they say, the Italians are using Brexit to press for permission to bend the rules of a hard-fought banking regime.

 

* * *

 

Rome has criticized the EU’s new banking regime and doesn’t want to use “bail-in” rules that prescribe the order in which stakeholders must bear losses for winding down an ailing bank, in part because of the peculiarities of the Italian banking system. About €187 billion of bank bonds are in the hands of retail investors, whose holdings would be wiped out by a bank resolution under the new rules.

 

Last year, more than 100,000 investors in four small Italian banks that were wound up saw their investments wiped out. Some lost their life savings. The controversy exploded in December after Italian news media reported that a retiree committed suicide after losing €110,000 in savings invested in one of the banks.

 

Such problems carry little truck in Brussels. “Every grandmother has bought bank shares,” said one EU official. “That’s how it’s presented to us…. This work has to be done within the rules, using all the flexibility there is.”

In that case, "every grandmother" in Italy has a big problem then, but not nearly as big as Renzi, because if the bank run (ahead of bail-ins) begins, it will all be over for Europe's most insolvent banking system.