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After MPS Nationalization Decision, Unicredit Under Pressure

Dec. 23, 2016 (EIRNS)—Following Italy’s official decision to nationalize Monte dei Paschi di Siena bank—and its likely intension to bail out others as well—financial media in Europe have not yet been able to find out how the MPS bailout is structured. Nor has there been any comment on it from the European Central Bank or the European Commission.

The government is clearly making liquidity and capitalization available to a number of banks simultaneously, with only MPS being nationalized now. The terms of that nationalization are not yet disclosed. But at least, "large depositors" will be bailed in—confiscated—to some extent. "Large depositors", including small and medium businesses, are a sizable chunk of the roughly 40,000 junior bondholders of MPS.

Immediately, Unicredit—the largest Italian bank — announced a layoff of 11% of its workforce, closure of a quarter of its branches, and an attempt to raise 13 billion euros new capital in January. The contagion has moved to that, and obviously other banks. A "bondholders’ run’ from other banks must be watched for.

Bloomberg news published an estimate today, based on observing the amount of capital Unicredit is trying to raise as a ratio of the bad loans on its books, that the big Italian banks need about $55 billion of the new capital which MPS has just failed to raise. It further estimates that they will have difficulty raising even $20 billion of that. Therefore the government’s $21 billion bailout fund, which already pushed its sovereign debt/GDP ratio to 133%, is at least $10-15 billion too small. And this assumes that it all could be used in a nice orderly way for recapitalization, and not to provide liquidity loans to the banks as it is already doing.

In Germany, Deutche Bank CEO John Cryan made a public statement that the bank will not need a German government bailout in order to pay the $7 billion in fines/homeowner credits imposed on it by the U.S. Department of Justice for mortgage fraud. That fine, announced Dec. 22, was dramatically reduced from $14 billion.