On April 12, in one of the easiest financial predictions in history, I challenged the notion that a €5 billion slush fund dubbed “Atlas” could possibly prop up €360 Billion of non-performing loans in Italian banks.
Less than a month later, “Atlas” is already a notable failure.
I seek no credit for my call, and none is due. Failure was a certainty from the start.
Instead, I question the sanity of anyone who thought such a preposterous scheme could work in the first place.
Please consider Atlas Strains to Hold up the Sky Over Italy’s Banking Sector.
A government-orchestrated, privately backed €4.25bn fund — rushed into place last month as investors fretted about Italy’s vast pile of bad loans run up during a long recession — has not proved the silver bullet Italian bankers and officials had hoped.
Italian bank shares plunged again this week, alongside a wider fall in banking stocks, taking their losses since the start of the year to more than 30 per cent. This wiped out hopes of bank bosses that the fund — dubbed Atlante or Atlas, the mythological titan who held up the sky — would swiftly cause a re-rating of their stocks.
Rattling investors, Atlante made its first rescue mission at the weekend taking ownership of scandal-hit regional bank Popolare di Vicenza after the failure of its €1.5bn capital increase — seen as a bellwether of investor sentiment about Italian banks — failed to attract investors.
Italian banks are already saddled with the highest proportion of bad loans, the most branches per capita and the lowest profitability of any G20 country. As their revenues are squeezed by low interest rates and weak economic growth, the situation could deteriorate further. Citigroup analysts described Italy’s banks as “fundamentally challenged” in a report this week predicting they could require €10bn-€30bn of extra provisions to deal with their bad loans.
Matteo Renzi, Italy’s 41-year-old reformist prime minister, on Wednesday sought to rally markets.
“Thanks to Atlante, Vicenza is saved. To the investors I say that finally the market rules in Italy,” he told reporters in Rome.
Others disagree. For example “If it were me I would ask for my money back,” said one senior banker.
European regulators, including Mario Draghi, chairman of the ECB, have described Atlante as a “first step”.
Are we saved or not? How many more steps are there?
Is one of them a bail-in?
For more on this preposterous scheme, please see Italy Concocts €5 Billion “Atlas” Rescue Fund to Cure €360 Billion in Non-Performing Loans; At Gunpoint.
Mike “Mish” Shedlock