The Italian Job
July 10, 2016 1:08 PM Subscribe
Europe's next crisis: Italy's teetering banks.
also:
Why Everyone Is Finally Panicking About Italian Banks.
"Britain’s vote to leave the EU has produced dire predictions for the U.K. economy. The damage to the rest of Europe could be more immediate and potentially more serious. Nowhere is the risk concentrated more heavily than in the Italian banking sector. In Italy, 17% of banks’ loans are sour. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.
Years of lax lending standards left Italian banks ill-prepared when an economic slump sent bankruptcies soaring a few years ago. At one major bank, Banca Monte dei Paschi di Siena SpA, bad loans were so thick it assigned a team of 700 to deal with them and created a new unit to house them."
Populist politicians take on Italy's massive debt pile.
"The Rome Olympics of 1960 marked the rebound of the Italian capital after years of war and reconstruction, an affirmation of the country’s renaissance and the city’s emergence as a symbol of dolce vita insouciance. Rome is still paying the bill, and the new mayor, Virginia Raggi, is sick of it.
The city has roughly €13.6 billion ($15.2 billion) in debt and more than 12,000 creditors—though the pile is so complex no one really knows how much is owed to whom."
also:
Why Everyone Is Finally Panicking About Italian Banks.
"Britain’s vote to leave the EU has produced dire predictions for the U.K. economy. The damage to the rest of Europe could be more immediate and potentially more serious. Nowhere is the risk concentrated more heavily than in the Italian banking sector. In Italy, 17% of banks’ loans are sour. That is nearly 10 times the level in the U.S., where, even at the worst of the 2008-09 financial crisis, it was only 5%. Among publicly traded banks in the eurozone, Italian lenders account for nearly half of total bad loans.
Years of lax lending standards left Italian banks ill-prepared when an economic slump sent bankruptcies soaring a few years ago. At one major bank, Banca Monte dei Paschi di Siena SpA, bad loans were so thick it assigned a team of 700 to deal with them and created a new unit to house them."
Populist politicians take on Italy's massive debt pile.
"The Rome Olympics of 1960 marked the rebound of the Italian capital after years of war and reconstruction, an affirmation of the country’s renaissance and the city’s emergence as a symbol of dolce vita insouciance. Rome is still paying the bill, and the new mayor, Virginia Raggi, is sick of it.
The city has roughly €13.6 billion ($15.2 billion) in debt and more than 12,000 creditors—though the pile is so complex no one really knows how much is owed to whom."
This 1 hour Mark Blyth talk is very good, he covers the Euro and monetary union, the financial crisis of 2008, the austerity policies now being applied in various countries and the resulting unemployment and financial meltdown that we are starting to see in Italy and Spain.
posted by Lanark at 2:30 PM on July 10, 2016 [9 favorites]
posted by Lanark at 2:30 PM on July 10, 2016 [9 favorites]
Looking at npl's cross border is basically fucking meaningless and it's an absolute embarrassment and indictment of the financial press that they don't understand this.
Yea Italy has problems but the problem is not as stark add these articles portray. The EU had massively made this situation worse because they Eu also lacks nuance in how they handle these problems. The BES bail in was basically executed in a cack-handed way and now we have this.
That doesn't mean BMPS et Al aren't basket cases, just that this "crisis" is entirely the result of the EU and the ECB.
posted by JPD at 2:44 PM on July 10, 2016 [1 favorite]
Yea Italy has problems but the problem is not as stark add these articles portray. The EU had massively made this situation worse because they Eu also lacks nuance in how they handle these problems. The BES bail in was basically executed in a cack-handed way and now we have this.
That doesn't mean BMPS et Al aren't basket cases, just that this "crisis" is entirely the result of the EU and the ECB.
posted by JPD at 2:44 PM on July 10, 2016 [1 favorite]
Italy's banking structure is sort of unusual; it has a lot of small banks that have relationships with many micro and small firms, and those relationships are very long-lived. Moreover, the banks are often owned by politically-connected private foundations (and were commonly state owned until the 90s) and had some political pressure to take on Italian sovereign debt. Italy (and Spain, Greece, Portugal, and Germany) have portfolios of sovereign debt that is very, very weighted towards their own countries.
My intuition is that the combination of taking on a lot of sovereign debt to a sovereign that might default (which makes it hard to get other banks to lend to you) and having a set of customers who are perhaps too small to weather large economic shocks and are reliant on bank funding might be why Italian banks have been particularly vulnerable to the last two crises.
Which is not to say that the Italian banks or government mismanaged things or the EU has mismanaged things (it can, and probably is, both). But there is a particular institutional set up here that probably complicates things.
posted by dismas at 3:05 PM on July 10, 2016 [5 favorites]
My intuition is that the combination of taking on a lot of sovereign debt to a sovereign that might default (which makes it hard to get other banks to lend to you) and having a set of customers who are perhaps too small to weather large economic shocks and are reliant on bank funding might be why Italian banks have been particularly vulnerable to the last two crises.
Which is not to say that the Italian banks or government mismanaged things or the EU has mismanaged things (it can, and probably is, both). But there is a particular institutional set up here that probably complicates things.
posted by dismas at 3:05 PM on July 10, 2016 [5 favorites]
Funding is not a problem. In fact most Italian banks have too many deposits. Capital is an issue, especially if you view them through an anglo-saxon or northern European lens rather than understanding why the balance sheets look the way they do.
But this isn't about sovereign risk
posted by JPD at 3:18 PM on July 10, 2016 [1 favorite]
But this isn't about sovereign risk
posted by JPD at 3:18 PM on July 10, 2016 [1 favorite]
Part of the problem is "Grexit" and "Brexit" were easy portmanteaus, but "Italexit" just doesn't sound right, so that eliminates one option... (but seriously, I've seen national decision making based on equally dumb principals...)
posted by oneswellfoop at 4:03 PM on July 10, 2016
posted by oneswellfoop at 4:03 PM on July 10, 2016
Italeave.
posted by the man of twists and turns at 4:09 PM on July 10, 2016 [5 favorites]
posted by the man of twists and turns at 4:09 PM on July 10, 2016 [5 favorites]
Ciatalia.
posted by NoxAeternum at 4:20 PM on July 10, 2016 [11 favorites]
posted by NoxAeternum at 4:20 PM on July 10, 2016 [11 favorites]
Italone.
posted by Joe in Australia at 4:38 PM on July 10, 2016 [2 favorites]
posted by Joe in Australia at 4:38 PM on July 10, 2016 [2 favorites]
At best, Italy’s weak banks will throttle the country’s growth; at worst, some will go bust.Come on 'The Economist' tell us how you really feel...
posted by ennui.bz at 4:45 PM on July 10, 2016 [3 favorites]
“You were only supposed to blow the bloody doors off!"
No, no- it's got to be deeper, let me finish, and breathier. Nasal, yes- but also, let me finish, from the chest. When it gets LOUDLY, it gets VERY LOUD INDEED.
"She was only SIXTEEN YEARS OLD!"
posted by TheWhiteSkull at 4:51 PM on July 10, 2016 [6 favorites]
No, no- it's got to be deeper, let me finish, and breathier. Nasal, yes- but also, let me finish, from the chest. When it gets LOUDLY, it gets VERY LOUD INDEED.
"She was only SIXTEEN YEARS OLD!"
posted by TheWhiteSkull at 4:51 PM on July 10, 2016 [6 favorites]
where can i short-sell the common man?
posted by j_curiouser at 5:10 PM on July 10, 2016
posted by j_curiouser at 5:10 PM on July 10, 2016
Be careful: when you short-sell the common man, you are risking an infinite loss.
posted by infinitewindow at 5:55 PM on July 10, 2016 [1 favorite]
posted by infinitewindow at 5:55 PM on July 10, 2016 [1 favorite]
Hmmm...there's a lotta treasure in that there Vatican.
posted by mandolin conspiracy at 6:06 PM on July 10, 2016
posted by mandolin conspiracy at 6:06 PM on July 10, 2016
Minor nitpick but the first quote attributed to ZeroHedge is nicked from the Wall Street Journal. In fact the entire ZeroHedge post is practically plagarized from the WSJ. ZeroHedge sucks big time.
posted by JackFlash at 9:31 PM on July 10, 2016
posted by JackFlash at 9:31 PM on July 10, 2016
Zerohedge is a weird website. It just loves this apocalyptic shit.
posted by My Dad at 9:33 PM on July 10, 2016 [2 favorites]
posted by My Dad at 9:33 PM on July 10, 2016 [2 favorites]
A worthy topic, but a zerohedge article is a terrible thing to build a post around.
posted by OldReliable at 10:59 PM on July 10, 2016 [3 favorites]
posted by OldReliable at 10:59 PM on July 10, 2016 [3 favorites]
I find it passing strange that the Bloomberg article opens on the debts remaining from the 1960 Olympics and fails to note anywhere else that we're currently bidding for the 2024 games.
posted by romakimmy at 11:14 PM on July 10, 2016 [3 favorites]
posted by romakimmy at 11:14 PM on July 10, 2016 [3 favorites]
Part of the problem is "Grexit" and "Brexit" were easy portmanteaus, but "Italexit" just doesn't sound right
exIT (or ex.IT if you want the domainhack version)
posted by Crones at 12:15 AM on July 11, 2016 [3 favorites]
exIT (or ex.IT if you want the domainhack version)
posted by Crones at 12:15 AM on July 11, 2016 [3 favorites]
Italone.
Why not Italoan? Debt forgiveness actually happens all the time between private parties, I think it's over-due to become fashionable with long-held public debt (and, cough, student loans, cough).
posted by Reasonably Everything Happens at 4:41 AM on July 11, 2016 [1 favorite]
Here are the rules I've worked out to get anything out of ZeroHedge's extremely high noise/sound ratio:
1: Skip every article that has no pictureThis will winnow down the 3-4 pages they put up goddamn daily to like, 3-5 articles. These will usually be obvious bullshit as well, just not easily categorized bullshit. The two remaining rules once you have potential non-bullshit are the most important:
2: Skip every article where the picture is a graph
3: Skip every article where the picture is of a single person's face
4: Skip every article where the picture is a cartoon
5: Skip every "Guest Post"
6: Skip every article about gold/silver, BitCoin, hyperinflation/deflation, liberty/freedom, and/or the Federal Reserve
7: ALWAYS click through to the sourceposted by 3urypteris at 4:54 AM on July 11, 2016 [3 favorites]
8: NEVER read the comments. Holy shit.
when a sovereign nation defaults, it's too bad for their creditors, right? That's the point of being sovereign, right? They get to decide who they pay and who not?
Like, if they default, things might get more difficult, other countries might refuse business, etc., but they can't come in and auction off the country, right?
posted by rebent at 7:28 AM on July 11, 2016 [1 favorite]
Like, if they default, things might get more difficult, other countries might refuse business, etc., but they can't come in and auction off the country, right?
posted by rebent at 7:28 AM on July 11, 2016 [1 favorite]
they can't come in and auction off the country, right?
Well...
posted by PMdixon at 7:39 AM on July 11, 2016
Well...
posted by PMdixon at 7:39 AM on July 11, 2016
Like, if they default, things might get more difficult, other countries might refuse business, etc., but they can't come in and auction off the country, right?
Talk to Argentina for an outlier. But, yes, in general defaulting can be the best option for a country rather than punishing ordinary citizens for years to benefit foreign bankers. But Italy is not really "sovereign." As a member of the EU it is under the thumb of the German bankers.
posted by JackFlash at 7:40 AM on July 11, 2016
Talk to Argentina for an outlier. But, yes, in general defaulting can be the best option for a country rather than punishing ordinary citizens for years to benefit foreign bankers. But Italy is not really "sovereign." As a member of the EU it is under the thumb of the German bankers.
posted by JackFlash at 7:40 AM on July 11, 2016
when a sovereign nation defaults, it's too bad for their creditors, right? That's the point of being sovereign, right? They get to decide who they pay and who not?
Like, if they default, things might get more difficult, other countries might refuse business, etc., but they can't come in and auction off the country, right?
Gotta think about who the creditors are, though. Like I mentioned above, Italian banks hold a lot of Italian sovereign debt. If that becomes worthless, those banks are now severely undercapitalized and could fail. (Imagine if people try to withdraw all their savings at once, and the banks can't sell their now-useless sovereign debt in order to get cash to pay out to depositors). The government's ability to given them cash to shore them up is limited by their ability to collect taxes if they can't borrow. Italian citizens who have bought their country's debt, even if banks don't fail, now also own pieces of paper that aren't worth anything.
This is the doomsday scenario; partial default might not be bad. The short term pain might be worth it, or it might not. But I don't think it's as simple as saying "well, it's some American hedge fund or German bank who owns these bonds, so fuck 'em." (It could be, but given the degree of home bias in sovereign debt portfolios among Italian banks, I sorta doubt it. Might be wrong!)
Also, agreed on ZeroHedge sucks. They have this "if you predict enough bad things, some of them come true" problem that lends them too much credibility.
posted by dismas at 9:03 AM on July 11, 2016 [1 favorite]
Like, if they default, things might get more difficult, other countries might refuse business, etc., but they can't come in and auction off the country, right?
Gotta think about who the creditors are, though. Like I mentioned above, Italian banks hold a lot of Italian sovereign debt. If that becomes worthless, those banks are now severely undercapitalized and could fail. (Imagine if people try to withdraw all their savings at once, and the banks can't sell their now-useless sovereign debt in order to get cash to pay out to depositors). The government's ability to given them cash to shore them up is limited by their ability to collect taxes if they can't borrow. Italian citizens who have bought their country's debt, even if banks don't fail, now also own pieces of paper that aren't worth anything.
This is the doomsday scenario; partial default might not be bad. The short term pain might be worth it, or it might not. But I don't think it's as simple as saying "well, it's some American hedge fund or German bank who owns these bonds, so fuck 'em." (It could be, but given the degree of home bias in sovereign debt portfolios among Italian banks, I sorta doubt it. Might be wrong!)
Also, agreed on ZeroHedge sucks. They have this "if you predict enough bad things, some of them come true" problem that lends them too much credibility.
posted by dismas at 9:03 AM on July 11, 2016 [1 favorite]
Again - not about sovereign issues here. No one is freaking out about these things today, right now, because they perceive the risk of Italian default having increased.
You can't just bail-in the bank debt holders because a huge amount of the debt is held by retail depositors who bought them from the bank.
Actual institutional holdings of the debt are quite low compared to other banks. What has freaked out the institutions is that the Portuguese basically figured out a way to bail-in the institutional holders while bailing-out the retail depositors @ BES.
Part of why BMPS et al were able to access the debt markets was because they thought it would be hard to bail them in while bailing out the retail folks. But now there is a blueprint for that.
posted by JPD at 10:23 AM on July 11, 2016
You can't just bail-in the bank debt holders because a huge amount of the debt is held by retail depositors who bought them from the bank.
Actual institutional holdings of the debt are quite low compared to other banks. What has freaked out the institutions is that the Portuguese basically figured out a way to bail-in the institutional holders while bailing-out the retail depositors @ BES.
Part of why BMPS et al were able to access the debt markets was because they thought it would be hard to bail them in while bailing out the retail folks. But now there is a blueprint for that.
posted by JPD at 10:23 AM on July 11, 2016
Okay, to be clear my point is:
(1) Italian banks are different from their counterparts in many ways, and the fact that they are in Italy does not help. You are right that sovereign default is a second-order issue here, although I think the political economy of the sovereign debt crisis is part of what got us the current institutional arrangement that for the Italian government to do anything and would exacerbate the fallout. So that was more about context than anything else, although I'm glad you clarified the issues at hand.
(2) Addressing a particular question rebent raised, I'm saying that sovereign default is not costless, and in particular might be more costly in Italy than in other countries.
posted by dismas at 11:36 AM on July 11, 2016
(1) Italian banks are different from their counterparts in many ways, and the fact that they are in Italy does not help. You are right that sovereign default is a second-order issue here, although I think the political economy of the sovereign debt crisis is part of what got us the current institutional arrangement that for the Italian government to do anything and would exacerbate the fallout. So that was more about context than anything else, although I'm glad you clarified the issues at hand.
(2) Addressing a particular question rebent raised, I'm saying that sovereign default is not costless, and in particular might be more costly in Italy than in other countries.
posted by dismas at 11:36 AM on July 11, 2016
Portuguese basically figured out a way to bail-in the institutional holders while bailing-out the retail depositors @ BES.
Pretty simple if you just treat it like FDIC insurance. Every individual or institution gets $250,000 of insurance.
posted by JackFlash at 1:25 PM on July 11, 2016
Pretty simple if you just treat it like FDIC insurance. Every individual or institution gets $250,000 of insurance.
posted by JackFlash at 1:25 PM on July 11, 2016
No. They don't work that way. The "account" is actually owning a bond with a face value. Legally it isn't different if I own 1000 bonds with a face of a thousand or three bonds. It's 1000 different "accounts" vs three different "accounts"
posted by JPD at 4:20 PM on July 11, 2016
posted by JPD at 4:20 PM on July 11, 2016
Why Italy is facing a looming crisis - "Europe is a place where everything is impossible. Countries won't do what it would take to leave the euro, because that would destroy their economies. And Europe won't do what it would take to make them want to stay, because that would destroy their rule book."
To save banks the time has come for an Italian TARP - "In an ideal world, this would be carried out by the Italian Treasury. Since we don't live in an ideal world, and EU rules forbid a move like that before having carried out a bail-in for 8% of bank assets, the only possible solution is to go through the Cassa depositi e prestiti (CDP) outside the perimeter of the state."
A Fix for Italian Banks May Be Balm to Portuguese Lenders Too - "Plans to boost Italy's banking sector could spur other European Union countries into action."
posted by kliuless at 11:04 AM on July 14, 2016
To save banks the time has come for an Italian TARP - "In an ideal world, this would be carried out by the Italian Treasury. Since we don't live in an ideal world, and EU rules forbid a move like that before having carried out a bail-in for 8% of bank assets, the only possible solution is to go through the Cassa depositi e prestiti (CDP) outside the perimeter of the state."
A Fix for Italian Banks May Be Balm to Portuguese Lenders Too - "Plans to boost Italy's banking sector could spur other European Union countries into action."
posted by kliuless at 11:04 AM on July 14, 2016
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posted by Quinbus Flestrin at 1:44 PM on July 10, 2016 [10 favorites]