Tag Archives: Italian banks

Which Banks Are Most Exposed to Italy’s Sovereign Debt? (Other than the Horribly Exposed Italian Banks), by Don Quijones

Italy is moving up fast on the outside in the race to see which dicey situation sets off the next global financial crisis. From Don Quijones at wolfstreet.com:

“Doom loop” begins to exact its pound of flesh.

Risk. Exposure. Contagion. These are three words we’re likely to hear more and more in relation to Europe, as the Eurozone’s debt crisis returns.

On Friday, Italy’s 10-year risk premium — the spread between Italian ten-year bond yields and their German counterparts — surged almost 20 basis points to 212 basis points. This was the highest level since May 2017, when a number of Italy’s banks, including third biggest bank Monte dei Pacshi di Siena (MPS), were on the brink of collapse and were either “resolved” or bailed out. Now, they’re all beginning to wobble again.

Shares of bailed-out and now majority-state-owned MPS, whose management the new government says it would like to change, are down 20% in the last two weeks’ trading. The shares of Unicredit and Intesa, Italy’s two biggest banks, have respectively shed 10% and 18% during the same period.

One of the big questions investors are asking themselves is which banks are most exposed to Italian debt.

A recent study by the Bank for International Settlementsshows Italian government debt represents nearly 20% of Italian banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign-debt holdings that represent over 100% of their tier-1 capital (which is used to measure bank solvency), according to research by Eric Dor, the director of Economic Studies at IESEG School of Management.

The list includes Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier-1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), Monte dei Paschi di Siena (206%), BPER Banca (176%) and Banca Carige (151%).

In other words, despite years of the ECB’s multi-trillion euro QE program, which is scheduled to come to an end soon, the so-called “Doom Loop” is still very much alive and kicking in Italy. The doom loop is when weakening government bonds threaten to topple the banks that own the bonds, and in turn, the banks start offloading them, which causes these bonds to fall further, thus pushing the government to the brink. The doom loop is a particular problem in the Eurozone since a member state doesn’t control its own currency, and cannot print itself out of trouble, which leaves it exposed to credit risk.

To continue reading: Which Banks Are Most Exposed to Italy’s Sovereign Debt? (Other than the Horribly Exposed Italian Banks)

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Despite Years of ECB’s QE (Ending Soon), Italy’s “Doom Loop” Still Threatens Eurozone Financial System, by Don Quijones

Italian banks own large amounts of Italian government debt, which is supposedly riskless…until it isn’t. Southern European banks are still strong contenders to kick off the next financial crisis. From Don Quijones at wolfstreet.com:

The dreaded “Doom Loop” — when shaky banks hold too much shaky government debt, raising the fear of contagion across the financial system if one of them stumbles — is still very much alive in Italy despite Mario Draghi’s best efforts to transfer ownership of Italian debt from banks to the ECB, according to Eric Dor, the director of Economic Studies at IESEG School of Management, who has collated the full extent of individual bank exposures to Italian sovereign debt.

The doom loop is a particular problem in the Eurozone since a member state doesn’t control its own currency, and cannot print itself out of trouble, which leaves it exposed to credit risk.

The Bank of Italy, on behalf of the ECB, has bought up more than €350 billion of multiyear Treasury bonds (BTPs) in recent years. The scale of its holdings overtook those of Italian banks, which have been shedding BTPs since mid-2016, making the central bank the second-largest holder of Italian bonds after insurance companies, pension funds and other financials.

But Italian banks are still big owners of Italian debt. According to a study by the Bank for International Settlements, government debt represents nearly 20% of banks’ assets — one of the highest levels in the world. In total there are ten banks with Italian sovereign debt holdings that represent over 100% of their tier 1 capital (or CET1), according to Dor’s research. They include Italy’s two largest lenders, Unicredit and Intesa Sanpaolo, whose exposure to Italian government bonds represent the equivalent of 145% of their tier 1 capital. Also listed are Italy’s third largest bank, Banco BPM (327%), MPS (206%), BPER Banca (176%) and Banca Carige (151%).

Will Italy’s Banking Crisis Spawn a New Frankenbank? by Don Quijones

Southern European banks have long been one of SLL’s candidates to really get the next financial crisis rolling. From Don Quijones at wolfstreet.com:

“Operation Overlord.”

There are rumors currently doing the rounds that Italy’s banking problems have finally been put to rest. The FTSE Italia All-Share Banks Index has soared about 40% over the last 12 months, about double the advance by the Euro Stoxx Banks Index. Six of the top seven gainers in the latter index this year are Italian.

The story of Italy’s non-performing loans, which just a year ago terrified global investors and posed a systemic threat to the entire Eurozone economy, “is over,” according to Fabrizio Pagani, the chief of staff at Italy’s Ministry of Economy and Finance. Pagani believes that now that the banking sector is well and truly on the mend, work should begin to take consolidation of the sector to a new level.

“There are too many banks,” Pagani told Bloomberg. “And in this sense, Monte dei Paschi could play a role. I think this could start this year.”

There’s clearly lots of room for consolidation in Italy, home to roughly 500 banks, many of which are small local or regional savings banks with tens or hundreds of millions of euros in assets. At the top end of the scale, Italy’s ten biggest banks control roughly 50% of the industry. The goal is to increase thatto 70-75% to bring it more in line with the levels of banking concentration in other EU countries. In Spain, for example, the five biggest banks — Santander, BBVA, CaixaBank, Bankia and Sabadell — control 72% of the market.

The problem is that, while last year’s bail out of Monte dei Paschi di Siena may have restored a certain amount of investor confidence to Italy’s banking sector, many of the largest banking groups are still extremely fragile, with stubbornly high non-performing loan (NPL) ratios. Even Intesa Sanpaolo, which is widely regarded as Italy’s most stable large bank, had a bad-loan ratio of 13% at the end of September, compared to a European average of 4.5%.

 

Dalio’s $13 Billion Short: Bridgewater Unveils Its Biggest Ever Short Position, by Tyler Durden

The world’s largest hedge fund complex is making a big bet against Italian and Spanish financial stocks, and a few European industrial concerns. From Tyler Durden at zerohedge.com:

Last October, Italy’s government was angry when the world’s largest hedge fund, Ray Dalio’s Bridgewater unveiled it had amassed a sizable  $713 million short against Italian financial stocks, its biggest disclosed bearish bet in Europe.

Then last week, and just one month before Italy’s March 4 elections – which the broader market stubbornly refuses to acknowledge are a risk factor – Bridgewater tripled down on its bearish bets against Italian banks and insurers, making the position the largest thematic short carried by the world’s biggest hedge fund.

As we reported last Thursday, Bridgewater boosted its bearish bets against Italian companies to $3 billion and 18 firms, up four-fold from just over $713 million in early October, further infuriating Italian authorities. As Bloomberg added, Bridgewater’s bearish bets against European companies as a whole totaled $3.3 billion, spread among 20 names.  In addition to his previous negative exposure, Dalio disclosed a short position in transport-infrastructure provider Atlantia and added to its largest short bet, against lender Intesa Sanpaolo SpA.

The growing short comes just days after Dalio told a Davos audience that “holding cash is now stupid”… and literally days before the biggest market crash since Lehman.

Fast forward to today, when Dalio’s bearish fascination is starting to get a little concerning, because according to the latest Bloomberg summary, Bridgewater now has at least $13.1 billion in European Union shorts, quadrupling the $3.2 billion short from last week, and over 18 times more than the fund’s original position last October.

In the past week, Bridgewater put more than $1 billion to work betting against oil giant Total SA – making it the firm’s largest disclosed short holding in Europe. 

As Bloomberg notes, Europe’s energy titan has been riding out the biggest industry downturn in a generation by selling assets and cutting spending. The hedge fund also started a bearish Airbus SE position, investing about $381 million against the aircraft maker. Among other short positions, it disclosed wagers against BNP Paribas SA, ING Groep NV and Banco Santander SA.

Amusingly, since the Feb. 8 regulatory filings were made public, Total fell 1% as markets slumped, while Dalio’s other shorts, Airbus, BNP Paribas, ING Groep and Banco Santander sank roughly 2%.

To continue reading: Dalio’s $13 Billion Short: Bridgewater Unveils Its Biggest Ever Short Position

 

Many European Banks Would Collapse Without Regulators’ Help: Fitch, by Don Quijones

It’s worrisome when regulatory forebearance is the only thing keeping some banks afloat. From Don Quijones at wolfstreet.com:

Dozens of Greek, Italian, Spanish and even German lenders have volumes of troubled assets higher or similar to that of Spain’s fallen lender Banco Popular. They, too, are at risk of insolvency. This stark observation came from Bridget Gandy, director of financial institutions for Fitch Ratings, who spoke at a conference in London on Thursday.

The troubled banks include:

  • Greece’s HB, Piraeus, NBG, Eurobank and Alpha;
  • Italy’s Monte dei Pachi di Siena (which is in the process of being rescued with state funds), Carige (9th largest bank, now under ECB orders to raise capital or else), CreVal, and the two collapsed banks, Veneto and Vicenza (whose senior bondholders were bailed out last weekend);
  • Germany’s Bremer Landesbank (which just cancel interest payments on its CoCo bonds) and shipping lender HSH Nordbank.
  • Spain’s Liberbank and majority state-owned BMN and Bankia, which are completing a merger after private-sector institutions refused to buy BMN. Now, the problems on BMN’s balance sheet belong to Bankia, which already has its own set of issues, Gandy said.

That many of Europe’s banks are teetering on the brink of insolvency is not exactly new news. Most of the problems that caused the financial crisis have not been resolved. As the financial journalist and former investment banker Nomi Prins said in a 2015 interview with Dutch media group VPRO, “in Europe there still exist massive amounts of trades (on banks’ balance sheets) that are underwater and going wrong every day.”

According to a chart presented by Gandy, most of the banks she cited (in particular the Greek and Italian ones) have total unprovisioned non-performing assets that clearly exceed their total level of capital. In other words, if the losses on those assets crystallized, the banks would run out of funds.

To continue reading: Many European Banks Would Collapse Without Regulators’ Help: Fitch

Contagion from the 2 Friday-Night Bank Collapses in Italy? by Don Quijones

The Italian banking crisis may kick off a global, or at least a European, banking crisis. From Don Quijones at wolfstreet.com:

This is how desperate the Italian Banking Crisis has become.

When things get serious in the EU, laws get bent and loopholes get exploited. That is what is happening right now in Italy, where the banking crisis has reached tipping point. The ECB, together with the Italian government, have just this weekend to resolve Banca Popolare di Vicenza and Veneto Banca, two zombie banks that the ECB, on Friday night, ordered to be liquidated.

Unlike Monte dei Pachi di Siena, they will not be bailed out primarily with public funds. Senior bondholders and depositors will be protected while shareholders and subordinate bondholders will lose their shirts. However, as the German daily Welt points out, subordinate bondholders at Monte dei Pachi di Siena had billions of euros at stake, much of it owned by its own retail customers who’d been sold these bonds instead of savings products such as CDs. So for political reasons, they were bailed out.

Junior bonds play a smaller role at the two Veneto-based banks. According to the Welt, the two banks combined have €1.33 billion (at face value) in junior bonds outstanding. They last traded between 1 cent and 3 cents on the euro. So worthless. Only about €100 million were sold to their own customers, not enough to cause a political ruckus in Italy. So they will be crushed.

The good assets and the liabilities, such as the deposits, will be transferred to a competing bank. According to a rescue plan apparently drawn up by investment bank Rothschild that surfaced a few days ago, Intesa Sao Paolo, Italy’s second largest bank, would get these good assets and the deposits (liabilities), for the token sum of €1, while all the toxic assets (non-performing loans) would be shuffled off to a state-owned “bad bank” – and thus, the taxpayer. According to the Italian daily Il Sole 24 Ore, the bad bank would be left holding over €20 billion of festering assets.

To continue reading: Contagion from the 2 Friday-Night Bank Collapses in Italy?

Two Italian Zombie Banks Toppled Friday Night, by Wolf Richter

Earlier this month it was a Spanish bank, which was purchased by another Spanish bank for one euro. Last Friday last rites were said for two Italian banks that were so sick nobody wanted them at any price. From Wolf Richter at wolfstreet.com:

ECB shuts down Veneto Banca and Banca Popolare di Vicenza.

When banks fail and regulators decide to liquidate them, it happens on Friday evening so that there is a weekend to clean up the mess. And this is what happened in Italy – with two banks!

It’s over for the two banks that have been prominent zombies in the Italian banking crisis: Veneto Banca and Banca Popolare di Vicenza, in northeastern Italy.

The banks have combined assets of €60 billion, a good part of which are toxic and no one wanted to touch them. They already received a bailout but more would have been required, and given the uncertainty and the messiness of their books, nothing was forthcoming, and the ECB which regulates them lost its patience.

In a tersely worded statement, the ECB’s office of Banking Supervision ordered the banks to be wound up because they “were failing or likely to fail as the two banks repeatedly breached supervisory capital requirements.”

“Failing or likely to fail” is the key phrase that banking supervisors use for banks that “should be put in resolution or wound up under normal insolvency proceedings,” the statement said. This is the first Italian bank liquidation under Europe’s new Single Resolution Mechanism Regulation. The ECB explained:

The ECB had given the banks time to present capital plans, but the banks had been unable to offer credible solutions going forward.

Consequently, the ECB deemed that both banks were failing or likely to fail and duly informed the Single Resolution Board (SRB), which concluded that the conditions for a resolution action in relation to the two banks had not been met. The banks will be wound up under Italian insolvency procedures.

To continue reading: Two Italian Zombie Banks Toppled Friday Night