Tuesday, July 05, 2016

Italy's Banks Are Crashing Like Tesla Cars, EU Bureaucrats Try To Blame Brexit

Italian banks have been dropping like flies this past couple of days.

If you recall, I did tell you a couple of weeks ago the IMF and ECB had been desperately firefighting in their efforts to hold off the Eurozone collapse until after the Referendum, so they could blame everything on Brexit.

It is no coincidence of course that only a few days after the Brexit vote everybody suddenly remembered the Eurozone was so far up shit creek even a rubber dinghy could get no further. Several Eurozone nations have been bankrupt for over a year, the largest being Italy and no matter how much cash Britain and Germany threw into the pot every week the basket case economies of southern Europe would inevitably drag down the whole edifice. And exactly as predicted by many of us who do to have an Economics PhD to prove we have been brainwashed by the Higher Education system, Italy is leading the way.

The Financial Times reports the price of a bond issued by Monte dei Paschi di Siena, Italy’s third-largest lender, plunged more than a tenth today (5 July, 2016) in the latest sign of growing investor alarm over bad debts within the country’s financial institutions.

Italians are wise enough to know there are far more important things than money (pictire: Portofino; source: blog.colourfulrebel.com

Years of lax lending standards left Italian banks ill-prepared when an economic slump sent bankruptcies soaring a few years ago. At one major bank, Banca Monte dei Paschi di Siena SpA, bad loans were so thick it assigned a team of 700 to deal with them and created a new unit to house them. Several weeks ago, the bank put the bad-credit unit up for sale, hoping a foreign partner would speed the liquidation process.

Europe's non-performing loan problem is such a huge problem that there is increasing pressure on the European Central Bank (ECB) to take this garbage on to its balance sheet. Bad debts and non-performing loans (NPLs) reduce the ability of banks to lend, thus in an economy that runs on debt, from government debt to the overdrafts and credit card balances of people like you and me. Bad debts, i.e. debts on which no interest is being earned and there is no chance of collecting outstanding repayments, consume capital and make banks more risk averse at a time when governments are desperate to kick off a consumer led recovery by making cheap, sub - prime loans available. With Italy (NPLs 13.4%) now following the same trajectory as Spain's bad debts, the situation is rapidly escalating (at an average of around 2.5% increase per year).

The bottom line is that at its core, it is all simply a bad-debt problem, and the more the bad debt, the greater the ultimate liability on investors, including people who have modest savings or deposit accounts and pension funds. The big question in Europe is: how much capacity to write off bad debt there is in the various European nations before savings and pensions have to take a haircut?

Britain’s vote to leave the EU has produced warnings of doom and gloom for the U.K. economy. However it was always the case that damage to the rest of Europe could be more serious given the precarious financial state of the Eurozone and the strain imposed on the German economy by the immigration crisis. The greatest risk is concentrated in the Italian banking sector where 17% of banks’ loans not being serviced. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.

Anxiety has now spread from stock markets, where shares in the world’s oldest bank have fallen by more than a quarter this week to reach a record low, after the European Central Bank demanded it shed another €10bn in bad loans.


Quitaly? Will Italy follow Britain out of the EU?

With a referendum in Italy, ostensibly on constitutional reforms but perceived as a referendum on the leadership of the ruling elite, looming in November and the anti - globalisation, pro sovereignty Five Star Party growing in popularity all the time. Should the constitutional changes be voted down, and the against campaign is showing a comfortable lead in opinion polls at the moment, it will put a Quitaly in-out referendum, similar to the so called Brexit vote that kick off the process of Britain leaving the European Union, at the top of the agenda.

Europe's Bank Crisis Arrives In Germany: €29 Billion Bremen Landesbank On The Verge Of Failure

... yesterday we observed a surprising development involving Deutsche Bank, namely the bank's decision to quietly liquidate some of its shipping loans. Reuters reported, "Deutsche Bank is looking to sell at least $1 billion of shipping loans [a market sector] whose lenders face closer scrutiny from the European Central Bank.

Smart Phones Will Not Make Banking Safer

Yet the war on cash goes on. The latest move is to encourage people to use their smartphone to do their online banking. My first reaction on reading this was, "They're having a laugh aren't they?" laptops and tablets are ridiculously easy to hijack, smartphones don't even need to be hacked, like tired old slappers whose sexual allure has gone south, but who still crave attention, they will offer themselves without needing to be asked.

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