Banking crisis in Italy

Here is a report on the banking crisis in Italy which apparently began on Friday, January 15, one of our watch dates. The article does not mention the date specifically, but says that last Wednesday the 20^th was the fifth day of the collapse of bank stocks. That means the first day was Saturday. Stock markets, of course, were closed Saturday the 16^th.

http://etfdailynews.com/2016/01/21/a-run-on-the-banks-begins-in-italy-as-italian-banking-stocks-collapse/

“The Italian financial meltdown that we have been waiting for has finally arrived. For quite a long time I have been warning my readers to watch Italy, and now people are starting to understand why.

“Italian banking stocks continued their collapse for a fifth consecutive day on Wednesday, and nervous Italians are beginning to quietly pull large amounts of money out of the banks.

“In particular, Monte dei Paschi is a complete and utter basket case at this point.

“A staggering one-third of their loans are “non-performing”, and the stock price has fallen a staggering 57 percent since 2016 began.

“Monte dei Paschi is going to need a major bailout, and the same thing could be said about almost all of the largest Italian banks.”

The article goes on to quote The Daily Mail:

http://www.dailymail.co.uk/wires/reuters/article-3408198/Some-Monte-Paschi-customers-withdraw-savings-banks-stock-sinks.html

It tells us that people are beginning to withdraw their money from Monte Paschi.

“MILAN, Jan 20 (Reuters) - Some Monte dei Paschi customers have been pulling savings out of the Italian bank, its chief executive said on Wednesday, as it faces a crisis over a mountain of bad loans that has wiped nearly 60 percent off its market value this year….

“The Tuscan-based bank's stock, which had sunk 15 percent on Monday and 14 percent on Tuesday, was suspended from trading several times on Wednesday before closing down 22.2 percent. Fears of contagion from Monte dei Paschi's crisis helped drag down other Italian banking stocks, with Carige and Banco Popolare shedding 18 and 11 percent respectively.”

The Telegraph asks, “Is Italy the next Greece?”

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/12111265/Is-Italy-the-next-Greece.html

“Italian banking stocks crashed again on Wednesday, continuing a month of poor performance and raising questions over the sustainability of the industry in its current structure – and even if it could end up in the same boat as Greece’s banking sector….

“A Bloomberg analysis puts Monte dei Paschi’s non-performing loans at almost one-third of its asset book, followed by Banca Carige at 27.4pc and Banco Popolare at 26.2pc, all cripplingly high levels.

“That indicates that despite years of support from central banks and a series of efforts to make banks set aside provisions to cover bad loans, Italy’s banks have failed to clean up their books.”

The main difference between Greece and Italy is that Greece has the 47^th largest economy, while Italy has the 8^th largest in the world. If the collapse of Greece nearly wrecked the European economy, what would happen if the banks in Italy failed? How long can banks survive when a quarter to one third of their loans are “non-performing” (i.e., in default)?

This news is not really new, of course. There have been many articles posted about the shaky banks in Spain and Italy even before the Greek crisis. It takes a long decline before such banks are either bailed out or allowed to collapse. Europeans especially need to be alert to the Italian bank situation, because any collapse in Italy will affect Europe first. But if it gets out of hand, the contagion could spread to the whole world.