Mr J.K. sent this article about the bailout of Banco Monte dei Paschi di Sienna in Italy and some other banks, to the tune of a mere twenty-five and a half billion dollars, mere pocket change. But there's something else looming in this article and it provokes some high octane speculation of the day. Here's the article:
In my opinion, the central story here is not the bailout of troubled Venetian banks (some stories never change, do they?) but Italy's, and Europe's, and one of the world's oldest, banks in continual operation since the Renaissance, the Banco Monte dei Paschi di Sienna, and one statement in particular caught my interest, and I suspect behind its careful "un-detailed" words lies a huge story which one might summarize with the word "cover-up":
Finance Minister Pier Carlo Padoan announced late Tuesday that the government had received approval from the European Commission to pump 5.4 billion euros into Banca Monte dei Paschi di Siena (BMPS) in exchange for the lender undertaking a major restructuring overhaul. (Emphasis added)
And, one paragraph away, there's this:
Toxic assets are at the heart of the bank's demise and its plan includes the intention to sell down 28.6 billion euros of gross non-performing loans (NPLs), of which 26.1 billion euros will be securitized (converted into marketable securities).
Toxic assets, non-performing loans, in a major western bank!?!?
So it isn't so!
Then, later, we read this:
Indeed, there could also be an opportunity for brave investors, suggests Surry, if Italy follows the path trodden by Spain which has seen its banking sector shrink from around 70 lenders to closer to a dozen since the financial crisis.
"Potentially BMPS is a consolidation play because ultimately the bank will be clean and definitely there is consolidation to take place in Italy from the 400-plus institutions down to probably 150," he offered.
So we have:
1) The bailout of Banco dei Paschi di Sienna;
2) Which received approval for a bailout in exchange for "restructuring" from the European Commission, which is now, apparently, in charge of what banks the Italian government gets to bail out, and the conditions under which it can do so;
3) Which restructuring presages a consolidation of lenders throughout the Italian banking system, resulting in fewer "lenders/banks".
I don't know about you, but gee, this pattern looks a little familiar.
There's a great big huge elephant in the room, however, that the article is not talking about. In fact, one might say there's not only an elephant, but a rhinoceros in the room. The elephant? Deutsche Bank and its relation to the Banco dei Paschi di Sienna, as covered in previous blogs on this site. And the rhinoceros? Italian prosecutions of the elephant. Noteworthy here is the entire absence of any mention of either one throughout the entire article, and that raises my suspicion meter into the red zone, and with it, some unusual and very high octane speculations.
What disturbs me here is that any action by the European Commission in this matter should be viewed as a conflict of interest, since the EU is largely a Franco-German union, with everyone else along for the ride as Frau Merkel gets to play Charlemagne (or perhaps, Karlamagne, or Karlin or Kaiserin, or something), a role she clearly appears to be enjoying. But why would the European Commission have reason to step in? I suspect, strongly, that the real bank being protected here, and being bailed out, is Deutsche Bank and its own high exposure to "toxic assets", some of them via its entanglement with the Banco dei Paschi, and that the "restructing" of the Banco dei Paschi di Sienna might, in reality, be an attempt to disguise things and prevent them from emerging into public light as Italy is openly debating leaving the European Union (Charlemagne, Inc., or perhaps better put, Charlemagne A.G.). If so, then a disturbing pattern is emerging here: using national banking crises, the European Commission is establishing the conditions to "restructure" national banking systems according to its own whims, and to make them subject to the European Central Bank in Frankfurt. In the process, more will be swept under the rug.
And that means the can is simply being kicked down the road, for they have no genuine solutions.
Let's hope the Italians look at this whole thing much more closely.
See you on the flip side...