In addition to a banking crisis that nobody wants to really admit is raging (even as German banks are now laying off thousands of workers, ignoring everything else), Germany has another embarrassing issue to deal with: pan-European Schadenfreude. It started last Friday with Greece which comforted its residents that the otherwise insolvent nation is "safe" from Deutsche Bank turmoil, after central bank head Stournaras said that "Greek banks not at risk from turmoil in European banks," adding that “we now have the tools, which didn’t exist in the past, to tackle difficult situations." He may have forgotten that Greece still has capital controls, and all Greek banks are currently insolvent, leading a state of vegetative existence only courtesy of the ECB's constant liquidity lifeline.
Today it was that "other" peripheral nation, Italy.
As Bloomberg reported earlier Italian banks, Finance Minister Pier Carlo Padoan, and central bank governor Ignazio Visco, "discussed the possible impact of a hypothetical worsening of a crisis at some large non-Italian banks" according to a Treasury official said. Clearly, the "non-Italian banks" referenced were just one: Deutsche Bank, although it was perhaps useful to distinguish that Italy is more focused on non-Italian banks, as opposed to its far more troubled local banks, of which Monte Paschi continues to be in bailout limbo with its third rescue attempt so far gaining zero traction.
The assessment came after Bank of Italy and Treasury representatives met with executives of Italian lenders Monday afternoon in Rome.
While Italy tried to tone down the "severity" of the meeting saying that talks were part of “routine” meetings among the parties, the fact that it was made public made the message sufficiently clear: Italy wants to get a carte blanche from Merkel to proceed with a state bailout of its own banks should the DB crisis accelerate further, which it well may tomorrow once German markets reopen following the lack of news of a reduction in the DOJ fine.
Bloomberg further added that officials and executives also discussed the Italian situation without referring to specific cases. To be sure, there are plenty to pick from.
Meanwhile, even though Germany was closed, sentiment surrounding Deutsche Bank did, indeed, deteriorate when first its short-dated CDS blew out back to record wides...
... while the USD-shortage across Europe, as represented by one of the few remanining market indicators that has not yet been corrupted by central bank intervention, the 3M EURUSD basis swap, slid to new 4 year lows, suggesting that the Dollar shortage in Europe continues to deteriorate, suggesting that there is something badly wrong with the interbank plumbing.
Investors will keep a close eye on Deutsche Bank stock tomorrow after its reopening in Germany to determine if the Italian "huddle" may just have jinxed Europe's biggest lender.