The spectre of nationalisation haunts Monte dei Paschi

As we approach Christmas and the New Year we see that there is something of a crossover between popular culture and the banking sector. What I mean by this is the way the TV series The Walking Dead seems to apply to some Italian banks and to Monte dei Paschi di Siena or BMPS in particular. As 2016 has progressed BMPS has looked more dead and less walking and this examination of its value will show us. Back on the 21st of January I used these numbers from Macrocredit as an illustration.

MontePaschi: Total capital raised since 2008: €14bn Market value today: €1.5bn

What is happening this morning well @warburg100 updates us.

UNABLE TO FIX AN OPENING PRICE. – 9.82%…….. new low 14.71 in a short deal with 143k pcs dealt.

This means that Bloomberg tells us this about the value of BMPS this morning.

The shares have dropped 87 percent this year, trimming the bank’s value to 478 million euros.

Actually if we use that latest share price and look at what Bloomberg used the value is now 431 million Euros compared to capital raised of 14 billion Euros. So whilst we should take care using a marginal price for an average concept we see that there has been value destruction on a grand scale here which has hurt ordinary people and investors badly as I will come to in a minute. But as James Mackintosh reminds us we have seen an extraordinary example of what we have labelled Fallin’ Alicia Keys style.

Monte dei Paschi now down 99.84% from all time high. Still holding out for -99.99%, if the suspensions allow it to fall enough

It is getting ever nearer.

Its bonds

As well as having equity capital banks these days increasingly issue bonds to back their capital and some of these are a type of hybrid capital especially if we note that the Euro area has bail in rules for some of them. Put simply if things go wrong you can lose your dough. There are obvious fears in the chart from @fastFT from late yesterday.

That bounce may seem hopeful but I would like you to note that the previous days closing price was 50.088 and the post bounce price was 47. 813. So it was still heavily down on the day off a closing price where half its value had gone. This is at a time which in general terms could hardly be more favourable for bonds as whilst the ECB does not buy bank bonds (yet) its deposit rate of -0.4% and purchases of well over a trillion Euros of sovereign bonds and some 50.4 billion of corporate bonds mean that it has been quite a bull market overall.

The issue of lower bond prices is where depositors and savers or the ordinary person come particularly into view. Back on the 24th of November I looked at how ordinary savers had been persuaded to invest in the share of banks in the Veneto region well here we are discussing bonds which were aimed at ordinary savers and depositors. With the value of some of these bonds halving and maybe worse to come we see that we are seeing Italy’s own version of a miss selling scandal. These bonds were badged as safe by the salesmen and women whereas they have turned out to be anything but.

This is the crux of the matter. Euro area bail in rules say that the bonds have to be hit whereas in terms of the impact on retail bondholders the Italian government feels that it needs to avoid this. Both out of justice and humanity but also out of simple politics.

What happened to Atlante?

This is the private-sector rescue vehicle. I have pointed out many times that it simply does not have enough money as in spite of it having a second cash call the demands on it are ongoing as this from Reuters yesterday shows.

Veneto Banca said in a statement Quaestio Capital, the manager of the Atlante fund, had pledged to put up 628 million euros ($655 million) by January 5 as part of a future capital increase.

In a separate statement Banca Popolare di Vicenza said the fund would pay 310 million euros into its coffers by the same date, also as part of a future capital increase.

So something of a dash for its cash seems to have been going on. Thus it could put some money into BMPS but not a lot

A run on the bank

Banks rarely survive such a thing and we have seen signs of this. Back in November the Financial Times reported this.

Monte Paschi, the world’s oldest lender, has lost €14bn — or 11 per cent — of its deposits since January, with an acceleration in July and August

Yesterday BMPS reported that it only had 4 months of liquidity left which is the sort of statement likely to make it 4 weeks or even 4 days! Some care is needed amongst the scaremongering as there is deposit protection up to 100,000 Euros and the Bank of Italy will be watching this like a hawk but larger depositors if there are any left are likely to move on.


Italy has had a parliamentary vote to raise “up to” 20 billion Euros which means that we will have to update the meaning of “up to” in my financial lexicon for these times. So the cash is ready and the deadline for the private-sector plans is 2 pm today. Christmas is a convenient time for such things as the public holidays can be used and it seems to be after Banif and Novo Banco a time that the Euro area prefers for such things. Or as @Swedes2Turnips1 put it.

Jingle bails.

The private rescue has failed to find anyone silly enough to back the 4 billion Euros of financial engineering with 1 billion Euros of equity. So the state is revving up although there are odd stories about the 4% stake of the state being raised to 70%. That is the sort of mistake the UK made with Royal Bank of Scotland when it is much better, if you have to invest, to also have the complete control that 100% provides. For example it is not a nice thing to happen but after a nationalisation the share price should be zero.

Spanish banks

The good day to bury bad news klaxon was in operation yesterday as this was announced.

Spanish banks, including Banco Popular Espanol SA and Banco Bilbao Vizcaya Argentaria SA, may have to give back billions of euros to mortgage customers after a final ruling by the European Union’s top court. Bank shares tumbled by as much as 10 percent. (Bloomberg)

How much?

The Bank of Spain estimates the maximum amount of mortgage floors affected by the ruling is slightly above 4 billion euros, an official said.

So we see new rules for tossing a coin where heads means the banks win and tails mean we lose. Meanwhile more disinformation is provided.

The ruling doesn’t affect Banco Popular’s solvency or strength, a spokeswoman for the lender said. The total impact of the ruling for the bank is 639 million euros and the bank has already provisioned to cover 305 million euros, she said.


This looks set to be the latest example of privatisation of profits and socialisation of losses from the banking sector otherwise known as the precious. Also the delay and dithering means that those responsible continue to collect their pay cheques and sometimes bonuses for as long as possible. The official time line has been provided for us by @Darlington_Dick



Oh and he was on CNBC in September.

Bailout for Italian banks has been ‘absolutely’ ruled out

Meanwhile please never take investment advice from former Prime Minister Matteo Renzi as he was to be found stating back in January that BMPS was a good investment. Also let me remind you that the President of the ECB Mario Draghi has been intimately involved in all of this over time via his past roles as Governor of the Bank of Italy and more as I pointed out on January 21st.

If we look further back in time we see that the law covering Italian financial markets is often called the Draghi Law and we note that around the turn of the century he was Director General of the Italian Treasury. Then he went to Goldman Sachs which was busy designing derivatives for Italy and Monte Paschi as well as Greece before returning to head the Bank of Italy. So if there is a crime his fingerprints are all over it.

Meanwhile for Italy itself there is the issue of its national debt which is already 2.22 trillion Euros and seems set to rise which reminds me of point 11 of my time line for a bank collapse.

11. It is announced that due to difficult financial times public spending needs to be trimmed and taxes such as Value Added Tax need to be raised. It is also announced that nobody could possibly have forseen this and that nobody is to blame apart from some irresponsible rumour mongers who are the equivalent of terrorists. A new law is mooted to help stop such financial terrorism from ever happening again.



16 thoughts on “The spectre of nationalisation haunts Monte dei Paschi

  1. I am sure there is not too much to worry about. Mr Padoan has assured us that apart from a few ‘critical’ situations, Italy’s banking system is ‘solid & healthy’.
    He also vowed to ‘minimise, if not erase’ any impact of the public intervention on the savings of ordinary citizens.

    • Hi Bez

      It looks like there is plenty of work to do for Mr.Padoan as Sky News has just released this.

      “World’s oldest bank Monte dei Paschi di Siena has confirmed its €5bn private sector capital raising has failed paving way for state bailout”

      I guess “solid & healthy” needs to go into my financial lexicon for these times as well.

  2. Euro area bail in rules say that the bonds have to be hit whereas in terms of the impact on retail bondholders the Italian government feels that it needs to avoid this. Both out of justice and humanity but also out of simple politics.
    So the taxpayer paying is more like justice?

    I never had PPI; wasn’t miss-sold a pension, mortgage, or anything like that.
    I’ve never been involved in banking or other financial services, yet I’ve never been conned.

    Begs the question, “How does a fool get together with his money in the first place?”

  3. I believe that a bail out is the best option under the circumstances to this type of situation. It minimizes the risk of contagion and spreads any losses among all taxpayers rather than just the bondholders and the depositors of the particular bank(s) involved. The EU bail in regime may look like a good idea to avoid a repeat of 2008 but it is fraught with difficulty in practice and, in my view, could be far worse than what it is intended to replace.

    However, the point about such a discussion of the relative merits of different courses of action avoids what is the overarching main issue: they are very poor solutions to a problem that should not exist, certainly in the context of banking as it is now practiced.

    Banks have failed in the past for a variety of reasons but these have been isolated cases and these might well be disposed of under insolvency laws, modified by the deposit insurance guarantee. However, what we have these days is that banking practice in general appears to have evolved to the point where excessive leverage and egregious risk taking are not only not the exception but the required norm and that regulation has simply failed to keep up with this and, worse, shows a distinct disinclination to try to do so. This means that as a result, as in all complex systems ( as is banking), there is an exponential risk to scale and that there is an inherent systemic risk with almost any failure.

    I am inclined to the view that the only way that you will get serious and necessary reform is in the wake of a systemic crisis which is far more likely today than ten years ago.

    • Hi Bob J

      Whatever route that is taken now after the failure of the private-sector effort is problematic. What this means is that this sorry saga has gone on for far to long and the situation has been allowed to go from bad to worse.

      I would love to see reform but I fear what sort of crisis would be needed to give it! The establishment cling on like Barnacles.

  4. cant see a reason to save that bank myself

    but then again my pension scheme isnt in it ( I think )

    and I’m not a German or French Bank

    nor does my next job depend on sucking up to other Bankers like Italian Pollies

    lets face it no one is going to stop this as they are untouchable


    • Hi Forbin

      I wholeheartedly agree that it is time for some of these banks to be let go. Otherwise we live in a world of denials, but then the matters denied are proven to be true no-one gets punished. Then we get the bureaucratic mantra of “lessons have been learned” and then the cycle starts again.

      • We cannot progress until we have dealt with the mess, even if it does, and I’m fully of the believe it does, require meltdown, because TPTB have to be unable to maintain the status quo.

  5. You have to feel sorry for poor old Italy, So loyal yet so put upon by the bigger boys. It mkaes me wonder (very regrettably) if she is constantly singing this to the European Commission:

    It make-a me sick
    All the t’ing I gotta do
    I can’t-a get-a no kicks
    Always got to follow rules
    It make-a me sick
    Just to make-a lousy bucks
    Got to feel-a like a fool
    And-a mama used to say all-a time:
    What’s-a matter you? Hey! Gotta no respect
    What-a you t’ink you do? Why you look-a so sad?
    It’s-a not so bad
    It’s-a nice-a place
    Shaddap-a you face!

    And on that musical note, it simply remains to say happy Christmas Saun, thanks for the bulletins throughout to 2016, here’s looking to 2017.

    • Merry Christmas to you as well Andy

      As we are in musical mode the board of Monte Paschi have replied.

      “Help me if you can, I’m feeling down
      And I do appreciate you being ’round
      Help me get my feet back on the ground
      Won’t you please, please help me?

      (Now) And now my life has changed (My life has changed) in oh so many ways
      (My independence) My independence seems to vanish in the haze
      (But) But ev’ry now (Every now and then) and then I feel so insecure
      (I know that I) I know that I just need you like I’ve never done before”

  6. Not sure about rule 11. but Italian officials have announced that ‘the rescue would be a “one-time” effort, which was temporary’.
    Good to see all is going to plan!

  7. Great blog, Shaun, as always.
    The same motive that would lead authorities to postpone bank bailouts to near Christmas has doubtless led the Bank of Canada to postpone publishing its three new core inflation measures to today, with the November 2016 CPI update. None of the new measures are exclusionary, so the Bank of Canada has become the only inflation-targeting central bank in the world whose preferred measures of underlying inflation register mortgage rate changes. If one looks at the annual inflation rates provided from January 2009 forward (this is ALL the Bank of Canada has chosen to publish, in sharp contrast with previous core CPI measures, where the actual monthly index numbers were provided) one can see why they would want to delay this initial release to the Yuletide. In August 2008, when the Canadian economy went into recession by some measures, the three new measures show inflation rates ranging between 2.5% and 2.7%, the rejected CPIX measure shows inflation of 1.7%. Just how, pray tell, does a central bank justify drastic interest rate cuts when the preferred measures of underlying inflation are well above the 2% target and closing in on the 3% upper bound? Ironically, although the change seems to have been made to move the inflation goalposts and make it easier to show a low rate of core inflation, the change seems to have happened just as the old measure, CPIX, has started showing lower inflation rates. As recently as April the CPIX inflation rate was 2.2%, but in November it was just 1.5%. It is still showing higher inflation than the Bank’s special favourite, the CPI-common measure, at 1.3%, but a lower inflation rate than CPI-median, at 1.9%, or CPI-trim, at 1.6%.
    Merry Christmas to you and your mom, Shaun, and to all the readers of your blog.

    • Merry Christmas to you and your family Andrew

      I need to take a look at these new Canadian inflation measures. Whilst I welcome (genuine) improvements my general feeling that the reason for having several measures is that they want to have the option of pointing at the lowest one.

  8. Yes, I think you are quite right about that, Shaun. Until the 2016 renewal agreement, the Bank of Canada has always had a single preferred core inflation measure, which was formally designated the operational guide. It was the CPIXFET until May 2001, then the CPIX. It seemed for a long time that the common component of CPI measure would be the new operational guide, as the Bank was pushing it and it was (and is) tracking lower than the other measures. But it is really the creature of its weightings: it is strongly correlated with components like mortgage interest cost and fruits and nuts that are excluded from the CPIX measure of inflation. These have negative inflation rates now and this partly explains why its inflation rates have been substantially lower than those of the CPIX recently. But of course such components can also rise strongly, and the CPI-common measure could potentially show a higher inflation rate than CPIX. With three measures (in November 2016 their annual inflation rates range between 1.3% and 1.9%) the Bank can always find an indicator that supports their constant refrain: inflation expectations are well-anchored.

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