Monday, April 11, 2016

“Europe Bank Crisis Spreads: Italy Calls 'Last Resort' Meeting To Save Banks”

“Europe Bank Crisis Spreads: 
Italy Calls 'Last Resort' Meeting To Save Banks”
by U.S. Reporter

April 10, 2016, 5:33 Pm EDT- "As a last resort to ring-fence a massive €360bn pile of non-performing loans of Italian banks, Finance minister Pier Carlo Padoan has called for a meeting of minds in Rome on Monday. Padoan seeks a plan reminiscent of the Sareb bad bank structure in Spain, even though that plan blew up several times. The bad bank will require equity contributions, mostly from Italy’s banks, insurers and asset managers to build up a backstop fund. This approach is necessary because Italy has public debt load that amounts to 132.5 per cent of GDP in gross violation of Eurozone rules.

The structure needs a buffer of last resort because Monte dei Paschi di Siena, Italy’s third-largest bank, has €170bn in assets and about €50bn in bad loans. Monte dei Paschi di Siena is regarded as too big to fail, a veritable elephant in the room, trading at zero compared with tangible equity. Lehman Brothers collapsed in 2008 it was trading at about 20 per cent of its tangible equity.

This is a pivotal moment in history because a bail-in of an Italian bank may cause a chain reaction with ripple effects that will be felt across the European banking system.

Italy is desperate to avoid the path Austria announced today, a 54% Haircut Of Senior Creditors In First “Bail In” Under New European Rules as commented on by Zerohedge.

• 100% bail-in for all subordinated liabilities
• 53.98% bail-in, resulting in a 46.02% quota, for all eligible preferential liabilities
• Cancellation of all interest payments from 01.03.2015, when HETA was placed into resolution pursuant to BaSAG
• Harmonization of the maturities of all eligible liabilities to 31.12.2023

In contrast, Italy is the “too big to fail”, “elephant in the room”. Should Italy try Austria’s solution, it presumably would cause a “chain reaction with ripple effects that would be felt across the European banking system.” Instead, officials will attempt to “ring-fence” the problem, hoping to “sweep it under the rug” where presumably a “€360bn pile of non-performing loans” will cure itself, eliminating the need for additional bail-ins.

The fact that this announcement comes just five HOURS after Austria announced the first Bail-in of a major bank, thereby wiping out Depositors and leaving citizens broke, and that both these announcement came on a Sunday, shows that an extraordinary banking crisis is so bad, it could not wait until Monday before bursting-forth into public view.”

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