Is Italy’s Banking Problem Becoming Too Big to Solve? by Don Quijones

Don Quijones pretty much answers his own question in the affirmative. From Quijones at wolfstreet.com:

They said it was contained, but now it hit the largest bank.

Ever since the European Commission and ECB jointly decided that Italy’s government could bend EU banking rules out of all recognition in order to bail out the country’s third largest bank, Monte dei Paschi di Siena, Europe’s financial stocks have been on a tear. But the good times were brought to a grinding halt Monday after Italy’s largest bank, Unicredit, which employs 55,000 people in 17 countries, announced losses for 2016 of €11.8 billion.

By the bank’s logic, it would have announced profits if it hadn’t had to write off €12.2 billion, including billions of euros of non-performing loans (NPLs) festering on its balance sheets.

But it got worse. In the registration document for its pending recapitalization, published on its website today, Unicredit also announced that its capital ratios at the end of 2016 might fall short of ECB requirements. It was enough to prompt a 5.45% slide in its shares. As detected in the ECB’s latest stress test, Unicredit already had the slimmest capital buffer of all Europe’s Global Systemically Important Banks (G-SIBs). And it just got slimmer.

The reality today is not comforting: a bank that is officially too big to fail, with over €1 trillion of “assets” on its books, just admitted that things are even worse than initially feared. Somehow, Unicredit will need to raise €13 billion in new capital by the end of June. If successful, it would be the biggest capital expansion of Italian stock market history.

Earlier this month, the bank has pushed through a 10:1 reverse stock split, cutting its shares outstanding by a factor of 10 and multiplying the share price by 10. So its shares today plunged 5.45% to €26.20 instead of to, say, €2.62. It makes the shares look more palatable, but it does absolutely nothing to bank’s market capitalization, which is down to just €16.2 billion.

To continue reading: Is Italy’s Banking Problem Becoming Too Big to Solve?

 

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