What’s the worst thing you can call a bank? Plodding? Insolvent? Systematically important? Deutsche?
No: The worst thing you can call a bank is “Italian.” It’s all been downhill for Italian banking since, you know, they invented it. And after Sunday, when Italy will have its chance to join the “We f***ed up at the ballot box” club, we’re likely to learn just how much marinara has snuck into the bloodstreams of transalpine banks.
Like Italy’s banks, Banco Popular lent aggressively, with lax standards, and borrowers stopped repaying loans when recession hit. Unable to afford big losses, it bet that real-estate prices would rise enough to boost the value of its unfinished apartment complexes and empty plots. They haven’t….
Raising capital could be harder for Europe’s weak banks, analysts say, if Italian voters reject Prime Minister Matteo Renzi’s proposed constitutional changes….
Banco Popular, which analysts often call Spain’s “most Italian bank,” has raised €6.1 billion from investors since 2009 to appease concerns. The latest capital raise, a rights issue in May to boost provisions for loan losses, brought in €2.5 billion.
Of course, that only becomes an issue if Europe’s Italian banks even make it to Sunday, which they might not, because something else might kill them first. That something is Italy’s most picturesque bank, which also happens to be its third-largest and most-fragile, and which has another 30 hours or so to raise some money.
Most of Italy’s banking sector is praying that MPS succeeds in a week beset with political risk. The country is struggling to sort out Europe’s biggest bad-loan pile and if MPS fails to raise the €5 billion it needs, it may be impossible for others to complete their own repairs….
Without a good swap result, the losses for MPS bondholders look likely to be more painful—and hurting retail investors could stoke a wider systemic crisis in Italy and the wider eurozone.