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%……..
$bmps 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.
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.
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.
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)
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
*PADOAN: ITALIAN BANKS ARE NOT WEAK (January)
*PADOAN: PERCEPTION OF ITALIAN BANKING SYSTEM HEALTH `DISTORTED’ (July)
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.