Italian Banks on the Brink

There’s an old saying: ‘What’s sauce for the goose is sauce for the gander.’ The meaning is obvious – if you insist on something for others, you have to be prepared to hold yourself to the same standard.
A version of that is playing out in Europe today. And right now the strongest signal is not coming from Germany – it’s coming from Italy. Italian banks are in deep financial distress (as were banks in Cyprus and Greece from 2011 to 2015). This involves the Banca Monte dei Paschi di Sienna (BMP), the world’s oldest bank still in operation, founded in 1472.
Monte Paschi’s trouble began in 2007 when it agreed to buy another Italian-based bank, Banca Antonveneta SpA. It offered 9 billion euros in an all-cash deal just as the global financial crisis was unfolding. The deal proved a disaster for Monte Paschi. It damaged its ability to withstand losses following the 2008 crisis.
Then investment bankers stepped in and sold Monte Paschi derivatives contracts that ended up hiding the bank’s surging losses from regulators. These deals only weakened the bank’s shaky finances.

This post was published at Examiner by James Rickards ‘ December 2, 2016.