How much money can Monte dei Paschi soak up?

When I began this blog there were several themes I wanted to establish. It is no great surprise that the banks pop up in so many in the “The Precious! The Precious!” world that we live. But I am not sure that anyone can have forecast the way that the Italian banks and one in particular would just go on and on and on. It is one of the slowest motion car crashes in history and in fact suggests fraud on an industrial scale. That fraud is in two components where the first is the original wave of deals and lending and the second is all the bailouts that were supposed to fix the situation in return for yet more money from shareholders and taxpayers. It has been another form of QE in a way as money has been distributed to directors and managers as well as to recipients of loans which will never be repaid. But on the other side of the coin Italian and other pensioners as well as taxpayers have lost out.

Next comes the issue of players as we keep seeing the same ones reappear. It rarely gets much coverage but the present technocratic Italian Prime Minister Mario Draghi has had his hands all over this. One clue is what is called the Draghi Law for the finance and corporate sector from his time at the Italian Treasury. Another is his time as Governor of the Bank of Italy when the banks did so many of the deals that contributed to their collapse and bailouts. Then there is his time as President of the ECB where the Italian banking can was kicked so hard it must have concussion.

Then there is the head of Unicredit Andrea Orcel who was at Merril Lynch back in 2007 advising on the Antonveneta deal which sparked the original collapse. Wherever he has been since seems to end in a court case of one form or another. The only real winner out of his deals has been him.

The Record

Via Reuters we can tally up the tale of woe that we looked at on the 13th of August.

JANUARY 2008 – MPS announces a 5 billion euros rights issue, a 1 billion euro convertible financial instrument called Fresh 2008, 2 billion euros in subordinated, hybrid capital bonds and a 1.95 billion euro bridge loan to fund the Antonveneta deal.

Next up was the Italian taxpayer.

MARCH 2009 – MPS sells 1.9 billion euros in special bonds to Italy’s Treasury to shore up its finances.

Very special I would imagine. Then everyone had to divvy up.

JUNE 2012 – MPS asks Italy’s Treasury to underwrite up to another 2 billion euros in special bonds.

OCTOBER 2012 – Shareholders approve a 1 billion euro share issue aimed at new investors.

Next was time for some sleight of hand as shareholders transferred cash in the one piece of good news Italian taxpayers have gad in this saga. Unless of course their pension fund was an investor as it would be robbing Peter to pay Paul.

JUNE 2014 – MPS raises 5 billion euros in a deeply discounted rights issue and repays the state 3.1 billion euros.

More! More! More!

JUNE 2015 – MPS raises 3 billion euros in cash having upped the size of its rights issue after posting a 5.3 billion euro net loss for 2014 on record bad loan writedowns. It repays the remaining 1.1 billion euro state underwritten special bond.

Next we were about to see the Euro boom so that would make it better, Right? Right?

Rome spent 5.4 billion euros in 2017 to rescue the loss-making Tuscan bank, which now needs up to another 2.5 billion euros, giving fresh urgency to efforts to cut Italy’s 64% stake as agreed with European Union authorities.

A free lunch?

With all that money piled in you might think that this was going to be the equivalent of a free lunch for Unicredit. But as we noted on the 13th of August troubles are never far away at Monte dei Paschi.

Annual losses at the Tuscan bank soared by more than 60% to 1.7 billion euros last year.

Indeed Unicredit wanted as Abba would say “Money,Money, Money” as a sweetener.

The biggest point of contention was the amount of capital that Monte Paschi needed before being transferred to UniCredit. The bank had argued it needed about 7 billion euros to restore Monte Paschi’s capital buffers and cover the costs of job exits. That was about three times higher than the initial estimate of the Treasury. ( Bloomberg)

This is always the way as in we get an estimate which turns out to be way short of what is required. Frankly they are a combination of a PR operation and psychology. Let me highlight this from Reuters on the 24th of last month.

Italy has set aside 1.5 billion euros to recapitalise MPS in light of the sale, but two of the sources said it was too early to put a number on the final size of the cash call. It could even be lower than the sum earmarked, one source said.

So it could “even be lower” and wait there was more.

ROME, Sept 24 (Reuters) – Italy’s Treasury is confident it will be able to announce a deal to sell selected parts of state-owned bank Monte dei Paschi (MPS) (BMPS.MI) to rival UniCredit (CRDI.MI) next month, four sources close to the matter told Reuters on Friday.

That sounds like the confidence expressed by Ole Gunnar Solsjkaer yesterday.

Anyway another 2.2 billion Euros were added to the Unicredit demands via deferred tax assets as we follow the familiar path set by the Irish banking collapse and bailouts.


If we widen our perspective we see that more trouble is on the way.This is from two main sources. The first is the world economic slow down that we are seeing which will affect Italy. That is exactly the opposite of the way that it increased its 2021 growth forecast from 4.5% to 6% only last month. Next comes a problem in an area and maybe the area where Italian banks can make money which is buying government debt and selling it to the ECB. The rise in bond yields means that the benchmark ten-year yield is now 0.94%. Not much of an issue in itself but over the past few months easy profits have turned to losses.

We can add to that another issue which hurts the Italian banks. House prices are not in play as an easy way of boosting their asset base.

According to preliminary estimates, in the second quarter of 2021 the HPI (see Italian IPAB) increased by 1.7% compared with the previous quarter and by 0.4% compared with the same quarter of the previous year (it was +1.7% in the first quarter 2021). ( Istat)

Overall it is a strength for Italy but not for its banks.

If we return to Monte deI Paschi there is this new development.


Remember when the then Prime Minister Matteo Renzi told people that the shares were a good investment?

The simplest counterpoint is that they poured some 5.4 billion Euros in back in 2017 but cannot do a deal by the close of 2021.

One more time
One more time
One more time, we’re gonna celebrate
Oh yeah, alright, don’t stop the dancing
One more time, we’re gonna celebrate
Oh yeah, alright, don’t stop the dancing ( Daft Punk )

11 thoughts on “How much money can Monte dei Paschi soak up?

  1. Hello Shaun,

    so as we come out of the covid debarcle are seeing a return to a familiar story ? The lurching ,staggering zombie TBTF Banks issue?

    it seems a never ending story following the same old tired script….


    PS: I still have some popcorn 😉

    • Hi Forbin

      I saw some packs of ( toffee) popcorn in the supermarket for what I think is still the same price ( £1) earlier. So you should be okay….

      As to MPS it is fraud on an industrial scale. I do not mean the original loans although that is a given. I mean the numbers in the various bailouts which have misled, shareholders, bondholders and taxpayers and sometimes all three.

  2. Forbin, get yourself a big box of pop-corn for the rest of the week. Should get interesting wehn we find ALL the banks and pensions funds in Europe are plain EMPTY.

  3. Off topic Tenreyro sees no rush to raise rates which is sensible imo to see how the economy performs the next few months after the end of furlough:

    LONDON (Reuters) -Bank of England interest rate-setter Silvana Tenreyro said she needed more time to judge how the end of the government’s job-saving furlough scheme was affecting the labour market, adding to signs that she sees no urgency to raise rates.

    “Uncertainty over the effects of the furlough scheme should be resolved over the coming months, which should help paint a clearer picture of the position of the labour market,” Tenreyro said in a speech to the Centre for Economic Policy Research.

    Around 1 million workers were probably still on the government’s job retention scheme when it expired at the end of September, according to estimates, raising the risk of a rise in unemployment and under-employment.

    Tenreyro also said a rise in inflation pressures from surging energy prices was likely to fade quickly.

    She has adopted a different tone about the need to raise borrowing costs to that of Governor Andrew Bailey who signalled last week that the BoE would act to contain inflation risks.

    The central bank’s new chief economist, Huw Pill, has said the question of whether to raise rates would be a “live” one at the BoE’s next meeting which ends on Nov. 4.

    He said inflation was likely to hit or surpass 5% soon, more than double the BoE’s 2% target. Financial markets are pricing in a rate hike next week, although the consensus of economists suggests the BoE will wait until early 2022 before moving. [ECILT/GB]

    In her speech on Monday, Tenreyro said that as well as the labour market, she needed more time to learn more about the persistence of disruptions to global and domestic supply chains which have pushed up inflation around the world.

    “The effects of supply chain disruption should also be temporary and unwind as supply of some goods increases, and as demand rotates back towards pre-COVID consumption patterns,” she said. “The speed of this rotation is a key uncertainty, and will be related to the evolution of the pandemic around the world.”

    Tenreyro said a recent slowing of Britain’s economic recovery was likely to continue in the coming months.

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