The ECB and the EU (Germany) today denied the request of Monte di Paschi (Italy's) to delay their capital raising exercise until 2017 due to the fall of the Renzi government. As suggested, the Northerns would love to see Italy nationalize the bank despite all sorts of rules against such actions (to be fair there is a a route to be followed) and the Italians may do just that. This is entirely a political game now as the thought of bailing out an Southern tier bank...especially an Italian one...is verboten guess where. So here we sit, going into the weekend with markets in disarray Over There and the thought of what this just might mean.
The Italians, it seems to me, have little choice. New equity from private sources is out of the question but without the possibility of the same I would think that we will see a run on the institution leading to certain failure without intervention. However, if the bank were to be intervened by the Italian government the political cost will be enormous.
Monte di Paschi is Italy's oldest bank; indeed, one can say it is Italy. Intervention by the government would undoubtedly result in total losses for subordinated debt holders, major losses for senior bond holders and a wipe-out of all equity for all practical purposes. The debt and equity of this bank is not held by funds: much of it is owned by the Italian public because of the bank's history and status. What looms before us would have been unthinkable a few years ago. To many it is unthinkable today. The decision to be made over this weekend--if one is to be made--will probably shape the future course of Italy and I suspect the European Union as well. What may have to be done will probably insure the election of a coalition dominated to a great extent by 5 Star thinking and resulting in first, the rejection of the Euro as a currency (or some sort of crazy dual currency experiment) and ultimately, the exit of Italy from the Union. And that will be that: The Fat Lady will have sung. Finito.
So, what was to be, in my mind, a fairly quiet weekend and year end is turning into perhaps one of the most momentous weekends in European history...or not. This is one hell of a game of chicken being played and for not the first time Angie and the boys may have misjudged things. I must admit that I am not well-enough versed in the details of the rules and regulations Over There concerning matters such as this so there may be some wiggle room, but from what I can presently see, there isn't. The Italians have but one card to play and if they play it...
Have a great weekend.
Showing posts with label Monte di Paschi. Show all posts
Showing posts with label Monte di Paschi. Show all posts
Friday, December 9, 2016
Thursday, February 7, 2013
ODE TO JOY
"Read you friend Buchheit's comments yesterday?" Gerry called today bright and early.
"Yep. Quite something." For the few of you not in the know, Buchheit refers to Lee Buchheit, Partner of Cleary, Gottleib, rescheduling guru and he who has terrorized financial institutions on behalf of sovereign clients (all deadbeats) for over 30 years. When Buchheit speaks, if you have a brain in your head you should listen.
"What the hell is he getting at, Charlie? You know him as well as anyone. Issuing warnings now about hidden risk in emerging markets." Did he switch sides or something?"
"I am sure not, but you have to understand Lee. There is a wonderful line from Shakespeare...I forget where...but it is '...and do as adversaries in the law; strive mightily but eat and drink as friends.'
That's the way he practices law and there are damn few like him...more's the pity. The representation of the client is one thing at which he is singular in purpose but that doesn't mean he will divorce himself from friends or reality outside of the client relationship. And frankly, when he warns that there are hidden risks particularly in the banking sector where so much debt has been guaranteed by sovereigns, that is a statement that hopefully cause both sides to think about before doing something stupid believing this credit thing is in the barn and dry."
"You think he is right?"
"Of course he's right. Look, this is about silly people having made really dumb decisions when all of the evidence they needed to avoid making those decisions was staring them right in the face. Now I've heard Lee say, 'He that sues my client is my friend,' but believe me, part of his job as he sees it is avoiding more debacles such as those in the past five years. Nevertheless, I think he is pretty sure that there is a lot more business coming his way given recent history. I also think he is not disturbed by the prospect. Got it?"
"Got it."
As I have said before, I've been on both sides with Brother Buchheit and for him I have nothing but the greatest respect. And in Euroland it is still about the banks in ways that we Over Here cannot imagine. The interconnections between the political forces and the financial institutions remain unrelenting. A prime example of this is Monte di Paschi de Sienna, much in the news these past weeks.
I have absolutely no knowledge as to the rumors surrounding the bank and Mario Draghi and what did happen or what may have happened during Draghi's involvement. Suffice to say Draghi has been hurt by some very vague allegations and the last guy you want hurt at this time is Draghi. Further, I am willing to bet a good deal of money (my idea of a "good deal" is probably a good deal less than yours) that not all the governmental involvement warned of by Mr. Buchheit is there in plain sight. If the growth enhancer ever hits the fan again, after the past couple of years some ugly stuff is going to burst into light. Keep watching this space.
Another large cloud on the horizon which might come under close scrutiny very shortly is the continued complete disagreement between Frankie and David on the European budget which the Brits consider dead on arrival unless modified ("reduced"). The financial risk to the region is enhanced by the political atmosphere which right now is not good. Finally, the Same Sr. Draghi warned today that economic conditions are nor looking up with a not-so-veiled threat that the strength of the Euro will probably reduce economic prospects in the coming year. Over Here, the reaction was. "What! You mean all is not well Over There?" Stocks fell as a result. Frankly, I would have thought that the markets would have collapsed upon learning how dumb are the people in charge, but that's just me. Anyway, the cat is out of the bag and at the same time here comes the sequester which is no big thing if one stops and thinks about it, but then again, there aint much thinkin' going on these days. This could be a rocky ride beginning in a few weeks but if you had the idea that Over There was about to end on a happy note, you might want to think again. It may have just started.
"Yep. Quite something." For the few of you not in the know, Buchheit refers to Lee Buchheit, Partner of Cleary, Gottleib, rescheduling guru and he who has terrorized financial institutions on behalf of sovereign clients (all deadbeats) for over 30 years. When Buchheit speaks, if you have a brain in your head you should listen.
"What the hell is he getting at, Charlie? You know him as well as anyone. Issuing warnings now about hidden risk in emerging markets." Did he switch sides or something?"
"I am sure not, but you have to understand Lee. There is a wonderful line from Shakespeare...I forget where...but it is '...and do as adversaries in the law; strive mightily but eat and drink as friends.'
That's the way he practices law and there are damn few like him...more's the pity. The representation of the client is one thing at which he is singular in purpose but that doesn't mean he will divorce himself from friends or reality outside of the client relationship. And frankly, when he warns that there are hidden risks particularly in the banking sector where so much debt has been guaranteed by sovereigns, that is a statement that hopefully cause both sides to think about before doing something stupid believing this credit thing is in the barn and dry."
"You think he is right?"
"Of course he's right. Look, this is about silly people having made really dumb decisions when all of the evidence they needed to avoid making those decisions was staring them right in the face. Now I've heard Lee say, 'He that sues my client is my friend,' but believe me, part of his job as he sees it is avoiding more debacles such as those in the past five years. Nevertheless, I think he is pretty sure that there is a lot more business coming his way given recent history. I also think he is not disturbed by the prospect. Got it?"
"Got it."
As I have said before, I've been on both sides with Brother Buchheit and for him I have nothing but the greatest respect. And in Euroland it is still about the banks in ways that we Over Here cannot imagine. The interconnections between the political forces and the financial institutions remain unrelenting. A prime example of this is Monte di Paschi de Sienna, much in the news these past weeks.
I have absolutely no knowledge as to the rumors surrounding the bank and Mario Draghi and what did happen or what may have happened during Draghi's involvement. Suffice to say Draghi has been hurt by some very vague allegations and the last guy you want hurt at this time is Draghi. Further, I am willing to bet a good deal of money (my idea of a "good deal" is probably a good deal less than yours) that not all the governmental involvement warned of by Mr. Buchheit is there in plain sight. If the growth enhancer ever hits the fan again, after the past couple of years some ugly stuff is going to burst into light. Keep watching this space.
Another large cloud on the horizon which might come under close scrutiny very shortly is the continued complete disagreement between Frankie and David on the European budget which the Brits consider dead on arrival unless modified ("reduced"). The financial risk to the region is enhanced by the political atmosphere which right now is not good. Finally, the Same Sr. Draghi warned today that economic conditions are nor looking up with a not-so-veiled threat that the strength of the Euro will probably reduce economic prospects in the coming year. Over Here, the reaction was. "What! You mean all is not well Over There?" Stocks fell as a result. Frankly, I would have thought that the markets would have collapsed upon learning how dumb are the people in charge, but that's just me. Anyway, the cat is out of the bag and at the same time here comes the sequester which is no big thing if one stops and thinks about it, but then again, there aint much thinkin' going on these days. This could be a rocky ride beginning in a few weeks but if you had the idea that Over There was about to end on a happy note, you might want to think again. It may have just started.
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