The Italian Bank Run: Monte Paschi Capital Shortfall Surges 75% To €8.8Bn Due To "Rapid Liquidity Deterioration"
By Tyler Durden
While the big news last week was that Italy’s third largest bank, Monte Paschi, had been nationalized after JPM destroyed the bank’s chances of securing a private-sector rescue, and that Italy would issue up to €20 billion in public debt to fund the bailout of this, and other insolvent Italian banks, it appears there may be more moving parts to the story.
Recall that as we warned, the biggest danger for both Monte Paschi, and Italy’s banking system in general, is that retail depositor confidence in the Siena bank is shaken enough to lead to a bank run either in the world’s oldest bank, or worse, across the entire Italian banking sector, leading to a worst case probability outcome of falling bank dominoes as bank funding needs explode, resulting in even more deposit outflows, and so on in a toxic feedback loop.
To be sure, Monte Paschi’s deposit run is hardly new, and as the bank itself admitted last week, it had already suffered roughly €14 billion in deposit outflows, or 11%, in the first nine months of the year as shown in the chart below.
It turns out that the bank run not only continued but accelerated.
As Reuters reports this afternoon, the ECB has told Monte dei Paschi it needs to plug a capital shortfall of €8.8 billion, 76% greater than the previous €5 billion gap estimated by the bank, and which hole the entire recently failed bank recapitalization was aimed at plugging, the lender said on Monday.
Meanwhile, for those who missed the last few episodes in the dramatic third bailout, and nationalization, in as many years involving Monte Paschi, here is a recap from Reuters:
Last Friday the Italian government approved a decree to bail out Monte dei Paschi (BMPS.MI) after Italy’s No. 3 lender failed to win investor backing for a desperately needed 5 billion euro capital increase. The bank said on Monday it had officially asked the ECB last Friday for go ahead for a “precautionary recapitalisation”.
A precautionary recapitalisation is a type of state intervention in a struggling bank that is still solvent. It means only a modest bail-in of investors though the government can buy shares or bonds only on market terms endorsed by EU state aid officials in Brussels.
In its reply, the ECB said it had calculated the capital it believed the bank needed on the basis of a shortfall emerging from European stress test of large lenders earlier this year. In those tests Monte dei Paschi was the only Italian bank to come short under an adverse scenario.
The ECB said the lender was solvent but signaled the bank’s liquidity position had rapidly deteriorated between the end of November and December 21, Monte dei Paschi said.
In other words, depositors yanked even more billions from the bank – a perfectly reasonable course of action in light of concerns about the bank’s viability – which in turns has led to an even worse liquidity situation at Monte Paschi.
The Siena bank …read more
