Monte dei Paschi di Siena
For days, I have felt morally obliged to report on the Italian slow motion crisis of banks with tens of billions of non performing loans. I’ve had trouble making myself work (as usual). So I hand the mike to Daniel Davies.
The background is that the world’s oldest bank Monte Dei Paschi di Sienna is in trouble (again). It has about 40 billion Euros of non performing loans on its books and has set aside about 20 billion Euros to cover them. The Italian government wants it to recapitalize by issuing new shares (which the Italian government will buy if no one else wants them as is likely). The European Union is telling the Italian government it can’t do this. There is a Euroconstitutional crisis.
Daniel Davies knows which side he is on.
Italy is just the sharp end of the stick. Imagine all these small German banks that dealt with the “world’s oldest bank” This bank avoided the hard choices after 2008, and their current market cap at Euro 5 billion precludes them from raising anything significant — if the shortage is really only Euro 20 billion. This is a Lehman moment nothing less, because eventually the board will have to give up the ghost and walk away — a tragedy that is pre-ordained. The real issue are the ramification to the rest rest of Europe’s financial system. DB, JP Morgan and Citi are the three largest derivative players in the world; conterparty failure could be massive here