Firstly as we arrive at what is now called Christmas Eve Eve let me wish all of you a very Merry Christmas. As I will be on the lunchtime show on Share Radio next Thursday I will post at the end of next week but will take a short break before then. Meanwhile financial markets have raised themselves from annual end of year torpor to review quite a bit of activity in the banking sector. You see governments and regulators invariably wait until this time of year to hand out presents to the banking sector although many of them are not the sort of present we dreamed of as children. In past years we have seen both bailouts and bail ins in Portugal and Italy for example and this year I have been expecting the final chapter of the Monte Paschi story to arrive about now for some time.
The collapse of Monte Paschi
This sad sorry saga is now coming to some sort of climax. Yesterday evening as City-AM reports the board of directors met and decided it was over.
The country’s third-largest bank said it failed to secure investors and sell new shares, so it scrapped a debt-to-equity conversion offer that had raised €2bn. It is returning bonds tendered under the swap.
Monte dei Paschi said it would not pay fees to investment banks that had worked to place its shares or on its planned bad loan sale, including its advisers JPMorgan and Mediobanca.
Investment bankers not be paid is that allowed these days? Anyway that moved us to a situation this morning as described below.
Trading in Monte dei Paschi shares, derivatives and bonds has been suspended today after confirming it has requested state aid from the Italian government.
Paolo Gentiloni, the new Italian prime minister, announced in the early hours of this morning that the country will dip into a €20bn (£16bn) fund to help the world’s oldest bank
The timescale being provided is a little bizarre however as the Bank of Italy should now move in and complete this over the holidays so that people know where they stand.
Local press has said the bailout plan could take two to three months, starting with a government guarantee of Monte dei Paschi’s own borrowings to ensure it doesn’t run out of cash.
The problem of course is balancing Euro area bail in rules with the fact that ordinary Italians bought and in some cases were miss sold the bonds of Monte dei Paschi which will be bailed in and the fact that the Italian taxpayer has to take on yet more debt. So whilst we can say “It’s Gone” we do not know exactly where. However we may find out later as Livesquawk points out.
Italian Government To Meet At 12:00 CET To Discuss Economy & Finance Decree.
Fines Fines Fines
The next section is brought to you with the question what did the US taxpayer do for revenue before they discovered fining foreign banks?
There was a little more surprise when this appeared on the news wires yesterday evening. From the BBC.
The US Department of Justice said: “From 2005 to 2007, Barclays personnel repeatedly misrepresented the characteristics of the loans backing securities they sold to investors throughout the world, who incurred billions of dollars in losses as a result of the fraudulent scheme.”……
Federal prosecutors said that as part of the alleged scheme Barclays sold $31bn in securities.
More than half of the mortgages backing the securities defaulted, the suit alleged.
According to Barclays this is all “disconnected with the facts” which looks like an official denial to me and we know what to do with them. This is a by now familiar tale where denial turns into how much? As I describe below.
Deutsche Bank and Credit Suisse
My old employer regularly features in the news and here it is as the US regulators hand it a grinch style Christmas present. From Sky News.
Deutsche Bank and Credit Suisse have agreed to pay $7.2bn (£5.9bn) and $5.3bn (£4.3bn) respectively in penalties relating to the collapse of the US housing market before the financial crisis.
The Swiss lender announced it had reached a deal with the US Department of Justice hours after a similar move by Deutsche.
So happy days for the US taxpayer and unhappy days for the shareholders of the two companies? Actually the share price of Deutsche Bank is up around 3% this morning at 18.27 Euros meaning this from Sky News must have been a miss read of expectations.
While the German bank’s sum is half the $14bn originally sought by investigators, it is more than $2bn above the amount analysts expected Europe’s third-largest bank to shell out.
It seems that it is Credit Suisse where expectations may not have been met as after an early rally the share price has drifted lower today. For a deeper perspective a pre credit crunch share price just under 90 has been replaced by one of 15.2. As for my old employer a sort of Christmas ghost puts a chill in the air as we note just under 99 Euros being replaced by 18.27.
How many extra nukes for the United States will these fines pay for?
Of Number Crunching and GDP
Let me open with some seasonal cheer for the UK providing by the Office for National Statistics this morning.
UK GDP in volume terms was estimated to have increased by 0.6% in Quarter 3 2016, revised up 0.1 percentage points from the second estimate of GDP published on 26 November 2016, due to upward revisions from the output of the business services and finance industries.
We cannot keep the banks out of the news but at least this time it is for something positive! However annual growth fell to 2.2% due to downwards revisions earlier in the year meaning that the post EU vote number was better than the average of the pre EU vote number leaving ever more egg on ever more establishment faces. I did ask about this on Twitter.
Is Professor Sir Charles Bean available to explain how his -0.1% to -1% GDP forecast turned out to be +0.6% please?
It would seem that our professorial knight is ideally equipped to continue the first rule of OBR ( Office of Budget Responsibility) club. Also the more wrong he is will he collect even more impressive sounding titles?
But there is something to provide humility to those who analyse the detail of economic numbers. From Howard Archer.
Welcome news as
#UK balance of payments deficit in 2015 revised down markedly to £80.2bn from £100.2bn;
Even in banking terms £20 billion is a tidy sum and a revision from back then gives us some perspective on this.
The trade balance deficit widened from £11.0 billion in Quarter 2 2016 to £16.7 billion in Quarter 3 2016 (Figure 9). The trade position reflects exports minus imports. Following a 1.4% increase in Quarter 2 2016, exports decreased by 2.6% in the latest quarter, while imports increased by 1.4% in Quarter 3 2016 following a 0.4% increase in Quarter 2 2016.
It would be more accurate to say we think we did worse in the quarter in question rather than being absolutely sure of it.
As I look back over not only this year but the preceding years of the credit crunch era I note how much of this is really a story about the banks and the banking industry. As we compare it to the real economy I feel that our establishment have misunderstood which is the tail and which is the dog. Even when we move to other stories such as UK GDP we see the banks at play again although in a rare occurence the mention is favourable.
The saddest part is that all of this was supposed to have been reformed well before now. I guess it is reflected by this from bitcoin price.
The average price of Bitcoin across all exchanges is 910.16 USD