AuthorTopic: Italy Granted "Extraordinary " €150BN Bank Bailout Program To Prevent Panic  (Read 666 times)

Offline Palloy

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I thought I posted the opening story of this saga, but maybe it got lost due to my internet connection problems, which have been terrible this last few weeks.

http://www.zerohedge.com/news/2016-06-30/european-commission-grants-italy-crisis-%E2%82%AC150bn-bank-bailout-program-prevent-run-depo
Italy Granted "Extraordinary " €150BN Bank Bailout Program To Prevent "Panic, Run On Deposits"
Tyler Durden
Jun 30, 2016

As we noted today, the rumors of an Italian bank bailout, which started on Monday morning, and were promptly shot down by Merkel the next day, got louder after a Reuters report that the Italian government is considering more creative ways to inject liquidity into Italy's banks. However that was just an appetizer to a main course, which came later today when as the WSJ reported citing a spokeswoman for the European Union’s executive arm that the "European Commission has authorized Italy to use government guarantees to create a precautionary liquidity support program for their banks." 

How did this happen so quietly under the table and without Merkel's blessing? WSJ says that the program was approved under the bloc’s “extraordinary crisis rules for state aid."

And here we thought that Italy's banks are actually doing so very well.  Oh wait, no we didn't.

As the WSJ notes, the proposed "crisis" plan is the "other leg of an intervention plan considered by the government" namely, the direct capital injection into Italian banks that would add up to €40 billion in capital to the banking sector", the one we profiled previously. It is also the plan that Merkel supposedly shut down before it got off the ground. However, Europe had a Plan B up its sleeve.

What are the details of this latest "crisis" program?

According to an EU official, the liquidity support program includes up to €150 billion ($166 billion) in government guarantees. The WSJ adds that the commission spokeswoman declined to comment on the amount of guarantees that were authorized, but said that the budget requested by the Italian government had been found to be proportionate. The Italian economy ministry declined to comment.

An amusing sidebar: "only solvent banks would qualify for the liquidity support program, which has been authorized until the end of the year." The problem is that with €360 billion in NPLs, every bank in Italy is insolvent, which implicitly means that they will all be found to be solvent or otherwise nobody will benefit.

Confirming the severity of the Italian fiasco, is that the decision which was taken on Sunday, had not been previously disclosed until the WSJ reported on it and "appears to be a first indication of governments moving to shore up banks in the wake of market turbulence following the Brexit referendum in the U.K."

In other words, just as we said before, Brexit was nothing more than a Europe-blessed "crisis" ploy designed to achieve two things: unleash more QE, which the BOE admitted will happen (most likely with the involvement of the ECB), and ii) to facilitate the bailout of insolvent Italian banks. To wit:

    Brexit will be just the scapegoat used by Renzi and Italy to circumvent any specific eurozone prohibitions. And if it fails, all Renzi has to do is hint at a referendum of his own. Then watch as Merkel scrambles to allow Italy to do whatever it wants, just to avoid the humiliation of a potential "Italeave."

And while Angela Merkel apparently shut down the original proposal pitched by Italy, Europe - surely under the guidance of Mario Draghi - has found a way to circumvent her veto power.

“As this decision and other precedents demonstrate there are a number of solutions that can be put in place in full compliance with EU rules to address market turbulence,” the spokeswoman said.

To be sure, Italy's market has indeed been turbulent: Italian banks have lost more than half of their market capitalization since the beginning of the year, as investors fret about the lenders’ huge exposure to bad loans. That compares to an average decline of less than one third for European lenders. Some Italian banks have seen their shares drop by some 75%.

But what is most stunning is the WSJ's conclusion of what the plan is supposed to prevent - it is not to halt the stock price collapse, it is to prevent a bank run:

    A person familiar with the Italian government plans said the cabinet of Prime Minister Matteo Renzi hoped to use a liquidity backstop to contain investor panic, which could result in a run on deposits and affect banks’ liquidity.

Needless to say, for Italy's Prime Minister to be contemplating how to avoid "investor panic" and prevent a "run on deposits", then Italian banks must truly be on the verge of collapse.

Finally, for those curious about timing and how soon until it all unravels, we quote the European Commission spokesman who said that “there is no expectation that the need to use this scheme should arise.”

What this statement really means, and whether a preemptive plan to bailout Italy's insolvent banks will "boost confidence", we leave up to readers decide.
The State is a body of armed men

Offline Palloy

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European "Union" - when everything is going well, but ...

http://www.zerohedge.com/news/2016-07-06/furious-italian-prime-minister-slams-deutsche-bank-europes-most-insolvent-bank
A Furious Italian Prime Minister Slams Deutsche Bank As Europe's Most Insolvent Bank
Tyler Durden
Jul 6, 2016

Several years ago, we were the first to point out the true "elephant in the room", namely Deutsche Bank's $75 trillion in derivatives which as we said at the time was about 20 times bigger than Germany's GDP, and 5 times bigger than the entire economic output of the Eurozone."

 

This was largely ignored by the "experts" because why bring attention to something which is fundamentally a devastating break in the narrative that "Europe is fine" and the financial crisis is now contained.

Fast forward to today when Europe is once again not fine, only this time one can't blame Europe's problems on Greece (instead the same "experts" are trying to blame everything in Brexit), when in a surprising admission of reality, none other than Italy's prime minister Matteo Renzi, "went there" and slammed Deutsche Bank as the true "derivative problem" facing Europe.

To be sure, Renzi has his own problems, chief among which is how to pass a banking bail out of his insolvent banks without implementing the dreaded bail in mechanism unveiled in 2016 as the only permitted European bank resolution mechanism. Alas, in his push to bail out rather than bail in Italian banks, Renzi has faced stiff resistance from the Germans, namely Angela Merkel and Wolfgang Schauble who have both strongly opined against this kind of backtracking. Just today, Wolfgang Schaeuble, speaking at a news conference in Berlin (just hours after Italy hinted once again at an imminent bailout of Monte Paschi), said his Italian counterpart Pier Carlo Padoan told him that Italy intends to stick to the banking-union rules. Perhaps not.

So it is not surprising that when faced with stiff resistance from the Germans, Renzi decided to call a spade a spade when, as Reuters reports, he said that the difficulties facing Italian banks over their bad loans are miniscule by comparison with the problems some European banks face over their derivatives.

One look at the chart above and it becomes clear just who he was referring to.

As Reuters adds, speaking at a joint news conference with Swedish Prime Minister Stefan Lofven, Renzi said other European banks had much bigger problems than their Italian counterparts.

"If this non-performing loan problem is worth one, the question of derivatives at other banks, at big banks, is worth one hundred. This is the ratio: one to one hundred," Renzi said

So just like that the Mutually Assured Destruction doctrine is activated, because now that Deutsche Bank's dirty laundry has been exposed for all to see, Renzi's gambit is clear: if Merkel does not relent on bailing out Italian banks, the collapse of Italian banks will assure the failure of Deutsche Bank in kind. And since in a fallout scenario of that magnitude DB's derivative would not net out, there will be no chance to save the German banking giant, bail out, in, or sideways.

And now the ball is in Germany's court: to be sure, traders everywhere will be curious to see just how this diplomatic escalation in which the fingerpointing at insolvent banks is only just beginning concludes, and most of all, they will follow every word out of Merkel's mouth to see if the Chancellor will relent and give in to what is the first tacit case of financial - and factual - blackmail.

Ironically, even the best possible outcome, namely another bailout of every insolvent European bank, will merely accelerate the same populist anger that catalyzed the Brexit-driven schism in the first place, and lead to even more anger at what will, inevitably, be yet another banker bailout until ultimately the war of words between the classes becomes all too literal.
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Offline Palloy

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Dominoes keep falling - Bremen Landesbank
« Reply #2 on: July 08, 2016, 12:51:04 AM »
http://www.zerohedge.com/news/2016-07-07/europes-bank-crisis-arrives-germany-%E2%82%AC29-billion-bremen-landesbank-verge-failure
Europe's Bank Crisis Arrives In Germany: €29 Billion Bremen Landesbank On The Verge Of Failure
Tyler Durden
Jul 7, 2016

When most recently reporting on the latest European banking crisis, yesterday we observed a surprising development involving Deutsche Bank, namely the bank's decision to quietly liquidate some of its shipping loans. As Reuters reported, "Deutsche Bank is looking to sell at least $1 billion of shipping loans to lighten its exposure to the sector whose lenders face closer scrutiny from the European Central Bank.

"They are looking to lighten their portfolio and this includes toxic debt. It makes commercial sense to try and sell off some of their book," one finance source said. Deutsche Bank, which has around $5 billion to $6 billion worth of total exposure to the shipping sector, declined to comment."

This confirms what had long been speculated, if not confirmed, namely that German banks have been some of the biggest lenders to the shipping sector, a sector which has since found itself in significant trouble as a result of the ongoing slowdown in global trade.

And now, it appears that some shipping loans gone very bad could be the catalyst for Europe's banking crisis to finally breach the most impenetrable border of all, that of Germany.

Because it is in Germany where we find what may be the next domino to fall as part of Europe's latest banking crisis incarnation: Bremen Landesbank.

Several weeks ago, the FT reported that the German Landesbank NordLB was considering taking full control of its smaller peer Bremer Landesbank (BLB), which is struggling under the weight of a portfolio of bad shipping loans. BLB, in which NordLB already owns 54.8%, warned last week that it would have to take a €400m writedown on its shipping portfolio, and that as a result it was facing a “mid-triple-digit million loss” this year.

As the FT added, the admission prompted concerns about the health of the Bremen-based bank, which had €29bn in assets at the end of 2015, and BLB’s owners have since been holding talks on how to bolster the stricken lender’s capital position.

In a statement made one month ago, NordLB’s chief executive, Gunter Dunkel, and Bremen’s finance minister, Karoline Linnert, said that BLB’s owners — NordLB, the city of Bremen, and the savings banks association in Northrhine Westphalia — had agreed to keep BLB’s capital “intact at an appropriate level”. "The form and size of the capital increase are currently being intensively discussed,” NordLB and the city of Bremen said. “The necessary decisions will be carried out by the end of 2016.”

The market quickly read, and internalized the news, then promptly moved on: after all, with a bigger backer set to rescue the bank, there is nothing to worry about.

Just one problem: that may no longer be the case.

In an article released moments ago by Germany's Handelsblatt titled a "Capital increase for ailing Landesbank is questionable", the German paper writes that "shipping loans have brought Bremer LB into distress and the bank can not survive without government help, but a direct capital injection from Lower Saxony now looks unlikey."

The punchline, and where the narrative veers dramatically from the smooth sailing scenario presented last month by the FT, is that according to "Lower Saxony' President Stephen Weil, a capital increase by his state and Bremen for the ailing bank is currently not realistic. "The classic method, namely when partners provide the necessary capital, does not seem to work," the Prime Minister said to the "Weser-Kurier". But, he added, "we will make every effort to save the Bremer Landesbank."

Bremer LB's sudden fall from bailout grace appears to be the latest result of political conflict, because as Handelsblatt notes, Weil was responding to remarks by his colleague Carsten Sieling (SPD), who excluded capital support for the BLB. In a scenario that Italy is all too familiar with, Sieling said that such an action would not be in line with EU requirements.

In other words, Germany may now find itself in the ironic situation that its own bailout intransigence will force it to engage in a bail in for one of its bigger banks.

To be sure, it is possible that a solution is found, and Merkel will need to concede to not only a Bremen LB bailout, but one of Italy as well, as the two would go hand in hand. On the other hand, it just may be the case that Germany refuses to save even one of its own.

And while the final outcome remains uncertain, the market quickly read between the lines and responded in preparation for a worst-case outcome: in intraday trading the bank's "equity-like" 9.5% Contingent Convertible bond of 2049 has plunged by almost half from 120 to 73 in minutes, a move which has likewise spooked broader global markets.
The State is a body of armed men

 

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