The slow motion collapse of Italy's banking system has accelerated today with the announcement of a €5.4 billion nationalization of the country's 3rd largest bank Monte dei Paschi. The bad-loan disposal plan will see €26.1 billion worth of bonds bundled and sold at 21% their face value as the notoriously insolvent institution flounders to bring its current net loss of €2.3 billion annually to €1.2 billion profit in the next 5 years.
(Image courtesy of Simon Black from sovereignman.com.)
This news comes on the heels of a separate announcement earlier this week that two other Italian banks, Banca Popolare di Vicenza and Veneto Banca, will recieve €5 billion of taxpayer money to transfer their non-performing assets to the more solvent institution of Intesa Sanpaolo. An additional €12 billion will be made available to help facilitate transactions during this process, bringing the total cost to around €17 billion of taxpayer funds. This figure is equal to the entire national defense budget of Italy.
Italy's unstable banking system has long been hailed as one of the top potential black swan events for 2017 as 18% of the country's loans are considered non-performing. This figure is staggering considering that during the 2008 financial crisis in the United States non-performing loans peaked at 5%. Italy's banks are working diligently to obfuscate from the endemic rot present within the Italian financial system as the European Union continues to kick the can down to road.
The question is:
With bank bailouts and nationalizations accelerating, how much road is left for this can to travel?
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