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Chinese Bank With $100 Billion In Assets Is Bailed Out

Chinese Bank With $100 Billion In Assets Is Bailed Out

Step aside Baoshang Bank, it’s time for Chinese bank bailout #2.

Last Thursday, when reporting on the imminent failure of yet another Chinese bank in the inglorious aftermath of Baoshang Bank’s late May state takeover, we dusted off a list of deeply troubled Chinese financial institutions that had delayed their 2018 annual reports…

… and noted that the #2 bank on this list, Bank of Jinzhou – with some $105 billion in total assets – recently met financial institutions in its home Liaoning province to discuss measures to deal with liquidity problems, and in a parallel bailout to that of Baoshang, the bank was in talks to “introduce strategic investors” after a report that China’s financial regulators are seeking to resolve its liquidity problems sent its dollar-denominated debt plunging.

Fast forward just three days later, when said failure-cum-bailout is now official: three months after Baoshang Bank was seized by the government in a historic first, Bank of Jinzhou was just bailed out, winning government-backed “reinforcement” on Sunday as three state-controlled financial institutions said they would take at least 17.3% in the troubled lender, whose shares have been suspended since April.

Industrial and Commercial Bank of China (ICBC), the country’s largest lender by assets, China Cinda Asset Management and China Great Wall Asset Management, two of China’s four largest distressed debt managers, said on Sunday they would take stakes in Bank of Jinzhou, Reuters reports.

To avoid further repo market lockups and freezing in the interbank funding market where in a freak incident, the Chinese government bond repo rate last Friday shot up to a whopping 1,000%…

…click on the above link to read the rest of the article…

How An Italian Debt Crisis Could Take Down The EU

How An Italian Debt Crisis Could Take Down The EU

Plagued by another run of bank bailouts and simmering tensions between the partners in its ruling coalition, Italy’s brief reprieve following the detente between its populist rulers and angry bureaucrats in Brussels is already beginning to fade. As Bloomberg reminded us on Monday, Italy’s $1.7 trillion pile of public debt – the third largest sovereign debt pool in Europe – is threatening to set off a chain reaction that could hammer banks from Rome, to Madrid, to Frankfurt – and beyond.

Italy

Just the mention of the precarity of Italian debt markets “can induce a shudder of financial fear like no other” in bureaucrats and businessmen alike – particularly after Italy’s economy slid into a recession during Q4.

Italy

While much of Italy’s debt burden is held by its banks and private citizens, lenders outside of Italy are holding some 425 billion euros ($486 billion) in public and private debt.

Bank

The Bloomberg analysis of Italy’s financial foibles follows more reports that Italy’s ruling coalition between the anti-immigrant, pro-business League and the vaguely left-wing populist Five-Star Movement has become increasingly strained. Per BBG, the two parties are fighting a battle on two fronts over the construction of a high speed Alpine rail and a legal case involving League leader Matteo Salvini over his refusal to let the Dicotti migrant ship to dock in an Italian port last summer.

After M5S intimated that it could support the investigation, the League warned that such a move would be tantamount to “blackmail” against Salvini, whose lieutenants have been pushing for him to take advantage of the party’s rising poll numbers and push for early elections later this year. However, Salvini has rebuffed these demands, warning that there’s nothing stopping Italian President Sergio Mattarella from calling for a new coalition instead of new elections.

 …click on the above link to read the rest of the article…

Turkey’s Debt Crisis Deepens, Erdogan Bails out Banks His Way

Turkey’s Debt Crisis Deepens, Erdogan Bails out Banks His Way

Shifting bad consumer & business debts from banks to the public, but the way this bank bailout got packaged is pretty nifty.

Turkish President Recep Tayyip Erdoğan has launched a raft of measures ostensibly designed to reanimate the economy, including offering direct financial support for people with credit-card debt. The plan will enable Turkey’s maxed-out consumers to go to the biggest state-run lender, Ziraat Bank, and apply for debt rescheduling at low rates of interest. “Any retail client from any bank can apply,” Erdogan said.

Credit-card debt is a major problem. Since 2010 consumer credit has increased almost five-fold on the back of low interest rates (at least in certain foreign currencies), government incentives, and loose loan standards. By August 2018, when these pillars supporting Erdogan’s debt-fueled economic miracle began to buckle, outstanding non-housing consumer debt, peaked at 532 billion Turkish lira ($97 billion at today’s exchange rate, chart via Trading Economics):

About half of this amount is credit card debt. About one-third of the credit-card debt was considered to be non performing. A good portion of this debt is denominated in foreign currency, such as the euro or dollar, to get access to the low interest rates available in those currencies. And this foreign-currency debt is now, after the lira’s exchange rate has fallen, very hard to service. In other words, the government’s scheme is likely to have plenty of takers.

“The debts of citizens who are having repayment problems will be collected under a single umbrella, via Ziraat Bank,” Erdogan said. “They will pay off their debt with a loan from Ziraat and will pay it back according to the level of their monthly earnings.”

…click on the above link to read the rest of the article…

Italy’s New Government Eats Its Words, Joins Bank Bailout Club

Italy’s New Government Eats Its Words, Joins Bank Bailout Club

Well, that didn’t take long. And whatever happened to the Eurozone’s new bail-in rule?

Italy’s government, in its eighth month in power, has already bailed out a bankrupt bank, mid-sized Banca Carige, with public funds. If approved by European Commission and the ECB, it will be the fourth Italian bank rescue in just over two years. As Italian daily Il Sole 24 Ore points out, Italy’s populist government has adopted virtually the exact same playbook to save Carige that was used by its predecessor in the previous three resolutions:

The draft of the new Carige decree is a carbon copy of the one used by the Gentiloni Government for the bailouts of Monte dei Paschi di Siena (MPS), BPVI and Veneto Banca — identical in every detail from the rules on state guarantees to the mechanisms adopted…

It took just eight minutes for Italy’s coalition partners, Five Star and the League, to renege on their flagship promise never to bailout a bank, reports Bloomberg. The new decree will allow the government to guarantee Carige bonds up to a maximum value of €3 billion, making it easier for the lender to retain access to the funding market. The government also wants the option, if necessary, to recapitalize the bank by injecting as much as €1 billion into its coffers despite having lambasted the previous government for doing the exact same thing with MPS.

It’s not yet clear whether the proposed rescue of Carige will contravene EU state-aid rules, which are supposed to impose strict conditions on the “precautionary recapitalization” envisaged by the government. Carige is already under the administration of ECB-appointed administrators after failing to agree to a €400 million capital increase at the end of last year. So if there are any issues it should be easy for European Commission or the ECB to stop the bailout dead in its tracks.

…click on the above link to read the rest of the article…

Italy’s newest bank bailout cost as much as its annual defense budget

Italy’s newest bank bailout cost as much as its annual defense budget

Two more Italian banks failed over the weekend– Banco Popolare di Vicenza and Veneto Banca.

(In other news, the sky is blue.)

The Italian Prime Minister himself stated that depositors’ funds were at risk, so the government stepped in with a bailout and guarantee package that could cost taxpayers as much as 17 billion euros.

That’s a lot of money in Italy– around 1% of GDP. In fact it’s basically as much as the 17.1 billion euros they spent on national defense last year (according to an estimate by Italian think tank IAI).

You don’t have to have a PhD in economics to figure out that NO government can afford to spend its entire defense budget every time a couple of medium-sized banks need a bailout.

That goes especially for Italy, whose public debt level is already 132% of GDP… and rising. They simply don’t have the money.

Moreover, the European Union actually has a series of new rules collectively known as the “Bank Recovery and Resolution Directive” which is supposed to prevent failing banks from being bailed out with taxpayer funds.

Here’s the thing– Italy has LOTS of banks that are on the ropes.

So with taxpayer resources exhausted (and technically prohibited), who’s going to be on the hook next time a bank goes under?

Easy. By process of elimination, the only other party left to fleece is the depositor.

Here’s how it works:

Let’s say a bank takes in $1 billion in deposits.

Naturally the bank doesn’t just keep $1 billion in cash sitting in its vault. They invest the money. They make loans. They buy assets.

So the bank’s balance sheet shows $1 billion worth of assets, and $1 billion worth of deposits that they owe to their customers.

But sometimes banks screw up when they invest their customers’ funds. Loans go bad. Borrowers default.

 

…click on the above link to read the rest of the article…

Hayes: “A Lot Of What I Know Even The DOJ Is In The Dark”

Hayes: “A Lot Of What I Know Even The DOJ Is In The Dark”

An exclusive excerpt from the hot new financial and legal thriller “The Spider Network” by David Enrich

The small ski resort town, nestled in the mountains outside the city of Karuizawa, was a popular destination for day trips for Japanese families. Bustling during the day, it was mostly quiet this Saturday night. Clouds cloaked the moon.

A chartered bus pulled up outside a bar, its windows aglow. A light snow was falling. Out into the peaceful evening stumbled dozens of rowdy bankers, some toting tall cans of Asahi and Kirin. Most of them were drunk. They quickly took over the small bar.

The drinkers were employees of the American bank Citigroup, one of the world’s largest and most troubled financial institutions. A year earlier, at the beginning of 2009, American taxpayers had finished pumping a staggering $45 billion into Citigroup to bail out the collapsing behemoth. Now the transfused recipient was treating dozens of its investment banking employees to a weekend getaway. The bankers were housed nearby in a sprawling luxury hotel, each employee’s room designed in Japan’s typical spare style.

These festivities weren’t so spartan. The point was to foster camaraderie, and that was happening in spades. The party had begun on the hundred-mile ride on the bullet train out from Tokyo. After a day of hitting the slopes, Citigroup ferried the bankers to a bowling alley, where they drank and bowled and drank some more. Their bus had then deposited the intoxicated crew at this bar, before leaving the partiers behind to fend for themselves.

…click on the above link to read the rest of the article…

Who Exactly Benefits from Italy’s Ballooning Bank Bailout?

Who Exactly Benefits from Italy’s Ballooning Bank Bailout?

Italy’s third largest bank, Monte dei Paschi di Siena, is not insolvent, according to the ECB; it just has “serious liquidity issues.” It’s a line that has already been heard a thousand times, in countless tongues, since some of the world’s largest banks became the world’s biggest public welfare recipients.

In order to address its “liquidity” issues, Monte dei Paschi (MPS) is about to receive a bailout. The Italian Treasury has said it may have to put up around €6.6 billion of taxpayer funds (current or future) to salvage the lender, including €2 billion to compensate around 40,000 retail bond holders.

The rest will come from the forced conversion of the bank’s subordinated bonds into shares. According to the ECB, the total amount needed could reach €8.8 billion, 75% more than the balance sheet shortfall originally estimated by MPS and its thwarted (but nonetheless handsomely rewarded) private-sector rescuers, JP Morgan Chase and Mediobanca.

All these events conform to a well established script. The moment the “competent” authorities (in this case, the ECB and the European Commission) agree that public funds will be needed to prop up an ostensibly private financial institution that is not too big to fail but nonetheless cannot be allowed to fail, the bailout costs inevitably soar.

And this is just the beginning. According to Italy’s Finance Minister Pier Carlo Padoan, the Italian government has already authorized a €20-billion fund to support Italy’s crumbling banking sector, with up to eight regional banks lining up for state handouts. In addition, MPS plans to issue €15 billion of new debt to “restore liquidity” and “boost investor confidence,” as several Italian newspapers reported on today. That debt will be guaranteed by the government and its hapless taxpayers.

…click on the above link to read the rest of the article…

Bank Bailout Balloons, Tab for Italian Banking Crisis Soars

Bank Bailout Balloons, Tab for Italian Banking Crisis Soars

Monte dei Paschi di Siena sinks deeper into the mire.

Over the Christmas holidays, when no one was supposed to pay attention, and when the markets were closed, the bailout costs of Monte dei Paschi di Siena, the third largest bank in Italy, and the center of the Italian banking crisis, suddenly jumped by 75% to €8.8 billion ($9.2 billion)!

Just how immense the black hole inside of a bank really is remains unknown until the bank collapses entirely and the pieces are sorted out. No one wants to know, especially not bank regulators. But when banks are teetering, and a bank bailout, or rather a bondholder bailout is being discussed, the aspects of that hole begin to emerge, and the hole keeps getting bigger the longer someone looks at it.

Earlier this year, the ECB’s stress tests of 51 large European banks determined that Monte dei Paschi was the shakiest among them. The ECB gave the bank until the end of 2016 to raise enough capital or contemplate the prospect of being wound down.

Last week, after Monte dei Paschi failed to work out a private-sector rescue deal led by JP Morgan, a taxpayer bailout was moved to the front burner. The bank’s shares and bonds were suspended from trading until the details of the bailout would emerge. This came after two prior capital increases from the private sector in recent years had failed to fill the holes. Each time, gullible investors had gotten crushed.

On Friday, the Italian government decided to shanghai its taxpayers into bailing out the bank’s bondholders with only a small haircut for holders of certain junior bonds. The decree it approved to that effect was based on the assumption that a €5-billion bailout – a “precautionary recapitalization” – would be needed.

…click on the above link to read the rest of the article…

Italy To Nationalize Monte Paschi After Private Sector Rescue Fails

Italy To Nationalize Monte Paschi After Private Sector Rescue Fails

Update: the FT writes that the Italian govt set to take a stake between 50% and 70% in Monte dei Paschi, up from the current 4% stake, as part of the government’s third bailout in as many years. As the FT adds, “the government rescue, which had long been resisted in Rome, is designed to draw a line under the slow-burn crisis in Italian banking that has alarmed investors and become the main source of concern for European financial regulators.”

It remains to be seen if Germany, long a critic of state bailouts, will be as agreeable.

Meanwhile, Pier Carlo Padoan, the Italin finmin, insisted that apart from a few “critical” situations, Italy’s banking system was “solid and healthy”. He vowed to “minimise, if not erase” any impact of the public intervention on the savings of ordinary citizens.

* * *

The third bailout, and re-nationalization, of Italy’s third largest banks is imminent following a Reuters report that the ongoing, JPM-led attempt to execute a complex private sector bailout of Monte Paschi has failed.

According to Reuters, Qatar’s sovereign wealth fund, long considered as the most likely anchor investor with a €1 billion allocation in any rescue plan cash call, decided it is unwilling to invest in the Italian bank, meanwhile Monte Paschi has been unable to find a replacement investor willing to put money in its privately funded rescue plan, less than 24 hours before the offer ends.

As a result, the bank entire share sale, which closes at 2 p.m. (1300 GMT) on Thursday, has drawn very little interest from the wider investment community.

As laid out previously, the bank needs to raise €5 billion by the end of this month to avert being wound down. The Italian government, which earlier today got a greenlight to issue €20 billion in public debt to use for bank bailout purposes, is expected to step in this week and nationalize the bank.

…click on the above link to read the rest of the article…

Bank of Italy Bails Out Four Banks

Bank of Italy Bails Out Four Banks

The European banking crisis is brewing. Last month alone, the Bank of Italy poured €3.6 billion euros into Banca Marche, Banca Etruria (PEL.MI), CariChieti, and CariFeto to prevent their collapse. The money was funded by financing from healthy banks. This is precisely how the banking crisis began in Austria back in 1931. They took a healthy bank and forced it to absorb a failed one, which was far worse than anyone realized as it took down all the banks.

The Great Greek Bank Robbery

The Great Greek Bank Robbery

ATHENS – Since 2008, bank bailouts have entailed a significant transfer of private losses to taxpayers in Europe and the United States. The latest Greek bank bailout constitutes a cautionary tale about how politics – in this case, Europe’s – is geared toward maximizing public losses for questionable private benefits.

In 2012, the insolvent Greek state borrowed €41 billion ($45 billion, or 22% of Greece’s shrinking national income) from European taxpayers to recapitalize the country’s insolvent commercial banks. For an economy in the clutches of unsustainable debt, and the associated debt-deflation spiral, the new loan and the stringent austerity on which it was conditioned were a ball and chain. At least, Greeks were promised, this bailout would secure the country’s banks once and for all.

In 2013, once that tranche of funds had been transferred by the European Financial Stability Facility (EFSF), the eurozone’s bailout fund, to its Greek franchise, the Hellenic Financial Stability Facility, the HFSF pumped approximately €40 billion into the four “systemic” banks in exchange for non-voting shares.

A few months later, in the autumn of 2013, a second recapitalization was orchestrated, with a new share issue. To make the new shares attractive to private investors, Greece’s “troika” of official creditors (the International Monetary Fund, European Central Bank, and the European Commission) approved offering them at a remarkable 80% discount on the prices that the HFSF, on behalf of European taxpayers, had paid a few months earlier. Crucially, the HFSF was prevented from participating, imposing upon taxpayers a massive dilution of their equity stake.

Sensing potential gains at taxpayers’ expense, foreign hedge funds rushed in to take advantage. As if to prove that it understood the impropriety involved, the Troika compelled Greece’s government to immunize the HFSF board members from criminal prosecution for not participating in the new share offer and for the resulting disappearance of half of the taxpayers’ €41 billion capital injection.

…click on the above link to read the rest of the article…

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