Skip to main content

Banca Monte de Pachi de Sienna

On December 30th, the Italian government finally bowed to the inevitable:  They rescued BMP from an ignominious ending -- bankruptcy has been avoided, although BMP is now a government owned bank.  The troubles surrounding the world's oldest bank go back nearly two decades where thoughtless growth, booking keeping skulduggery has after two bailouts has finally been nationalized, via the injection of Euro 6.5 billion.  Also two days ago BMP announced that they will raise Euro 15 billion in debt from the market, guaranteed by the Italian Treasury (so the Euro 20 billion total exposure has already been breached).

BMP has indicated that about Euro 22 billion or nearly 1/4 of its loan book is doubtful -- that recovery will be partial.  Many of the legacy assets of the banks never lived up to their promises when they were acquired and will, I suspect, be quietly shut down.  The outflow of depositors may be reversed, but why would depositors go back to  a bank that caused them such trouble to start with, depositors that have left, have found new homes for their funds, few will return.

A newer version of BMP may emerge in a few months/year -- so that Italy can continue to lay claim to having the world's oldest bank.  It will be a shadow of its former self, it will survive to justify the billion of Euro that the Italian Treasury has invested.  Investors got nothing, it should be noted that the bank has shown an incredible ability to shoot itself in the foot.  Two bailouts already made the institution tainted.

Today, Banca Intesa Sanpaolo sold some subordinated debt in the Italian market -- a Euro 1.5 billion issue was nearly 3x oversubscribed with a coupon of 7.25%.  As they say, "bankruptcy is so 2016!". The deeply subordinated bonds were popular for two reason -- the coupon and the level of subordination; there remains real "equity risk" below the new debt tranche of 13.1% -- almost twice as much as what similar bonds had a security in the December 2016 DB deal.

The question is what next?  The Italian government had a maximum amount available for bank bail outs of Euro 20 billion -- the total for BMP so far is around Euro 22 billion.  It is known that the other Italian banks are also in trouble, and poorly capitalized.  Clearly Italian banks will issue Cocos (these deeply subordinated debt instruments) but this is expensive money and the BIS deal is certain to create a benchmark -- other Italian banks will have to  pay similar prices and similar level of subordination.

Interesting times for Italy.

On a side note US bank stocks have been on a tear of late; since the November 8 election of Trump, bank stocks have been up about 30% (both BoA and JPMorgan and GS) and even some European banks have seen a "spring" in their pricing.  In fact, US financial stock accounts for nearly 50% of the rise in the DOW

Comments

Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…