Italy: Bank drama continues - BBH

Research Team at BBH notes that the Italian bank drama continues as the bank shares are higher amid reports that the Cabinet has agreed to request as much as 20 bln euros authorization from parliament to provide precautionary public guarantees to Monte Paschi (and a couple of smaller banks). 

Key Quotes

“Monte Paschi's share offer expires tomorrow for retail investors and Thursday for institutional investors.  It is seeking to raise 5 bln euros, though its market cap is around one tenth of that.”

“Unicredit, Italy's largest bank has indicated it will seek to raise around 15 bln euros early next year, which is roughly the size of its market cap.  Earlier, Fortress, which has bought bad loan portfolios from Italian banks since 2000 (~22 bln euros) expressed interest in part of Unicredit's non-performing loan portfolio.”

“There are two challenges for the new technocrat government led by Gentiloni, the fourth unelected prime minister.  First has to do with the size of assistance that Italian banks need.  This is slightly easier than the second challenge, which is the form of the aid.  Unlike earlier in the crisis, there are now rules in place to protect taxpayers (conditions on state aid).  The various Italian governments have acted too slowly, and when they finally did act, it was too small.  Too little, too late.  Italian bonds are under-performing Spain and Portugal today, though the 0.55% rise in Italian equities today is among the strongest.”