- Like “Game of Thrones” or “House of Cards”? You will love Dead Banks Walking an amazing TV series were Italian politicians always make “whatever it takes” to keep their hands on local banks governance pretending to care about savers, macroeconomic stability and employment.
Previously on Dead Banks Walking:
- Veneto Banca and Banca Popolare di Vicenza were supposed to launch an IPO on Italian stock exchange in the first half of 2016, but markets were not smart enough to understand their value
- Atlante Fund was then founded to teach markets how to assess banks’ enterprise value
- In December 2016 markets were still not able to fairly evaluate banks, since they refuse to grant only 2Bn out of total 5Bn capital increase to Mote dei Paschi di Siena
- By 2016 year end Italian Government was forced to launch a 20bn education program to teach financial markets how to price banks
- Devaluation of stakes in Atlante Fund showed how full understanding of how to evaluate banks was still far from reach
- Mid 2017 the final solution: the 2 banks need to be merged (so they will become systemic) ans rise 1,25Bn of private capital in order to be allowed to get some 5 Bn state recapitalization – this meaning a little help from ECB sating the bank is solvent and Eu Com saying state money are not used to fill previous lossess
- ECB deemed Veneto Banca and Banca Popolare di Vicenza failing or likely to fail
- State aid: Commission approves aid for market exit of Banca Popolare di Vicenza and Veneto Banca under Italian insolvency law, involving sale of some parts to Intesa Sanpaolo -In particular, the Italian State will grant the following measures:
- Cash injections of about €4.785 billion; and
- State guarantees of a maximum of about €12 billion, notably on Intesa’s financing of the liquidation mass. The State guarantees would be called upon notably, if the liquidation mass is insufficient to pay back Intesa for its financing of the liquidation mass.
- Once upon a time there was a very simple idea: public funded bail out of banks should be allowed only after bailing in shareholders and creditors (even senior ones) in order to reduce moral hazard and allocating fairly the cost of crisis management
- Then politics came to show us that bureaucrats can always bend rules and find exceptions in order to get the outcome they want – senior bond holders (worth 10bn) may be spared the immediate bill of 5bn is on taxpayers
- So the happy end is good old politicians may claim to have avoided an economic disturbance in the Veneto region, and to some extent to have saved savers while the immediate cost is shifted on future generations since it is included in the Dec 2016 banking system rescue package of 20bn public debt increase or some 1% of the total stock )
- Finally increasing public debt (20bn in dec 2016 or some 1% of the total stock) is not a problem since “in the long run we are all dead” so we can happily sing:
Quant’è bella giovinezza,
che si fugge tuttavia!
chi vuol esser lieto, sia:
di doman non c’è certezza.
GLG – Gerson Lehrman Group – Council Member