Atlas, the €4.25 billion fairy tale rescue plan that was supposed to bail €360 billion in bad Italian bank debts (the amount varies by the day), was such a miserable failure that Italian politicians need to rescue Atlas.
The latest proposal involves throwing another €2 billion at Atlas. That amount is supposed to bail out Atlas so that Atlas can bail out Banca Monte dei Paschi.
In a cascade of miracles, the additional €2 billion will start a cascade that will cure €360 billion in bad Italian bank debt.
Banca Monte dei Paschi
Please consider Italy Eyes Private Deal to Bail Out Bank.
Italy is eyeing a "private sector" solution to rescue Monte dei Paschi di Siena, Italy's third-largest bank by assets, in an attempt to sidestep tough EU curbs on bailouts, according to senior bankers and European officials.
Rome's main options, however, involve the heavy involvement of the state-backed bank Cassa Depositi e Prestiti, raising the risk that the intervention will ultimately run foul of EU curbs on state support.
The push comes as Italy prepares for the fallout from critical bank stress tests on July 29 and desperately seeks a way out of a stand-off with Brussels over the use of state money to prop up failing lenders.
Rather than inject state money directly into Monte Paschi as originally planned, Italy is exploring ways to buyout its bad loans at favourable rates with money from private and state-backed institutions. This would use the existing privately backed fund, called Atlante [Atlas in English], and would not need preapproval from Brussels.
The latest attempt at finding a solution, which should conclude before the stress tests at the end of the month, involves increasing the size of the €4.25bn government-sponsored backstop, Atlante, with about €2bn of additional capital coming in part from Treasury-owned bank CDP and state pension funds.
The aim is to provide it with the firepower to securitise for sale at least €10bn of Monte Paschi bad loans, say people involved in the talks. The bank would also attempt to raise up to €3.5bn in new capital, something eurozone officials doubt it could raise in markets.
Shares in 544-year old Monte Paschi, the world's oldest lender which has already received two state bailouts, are trading at 8 per cent of their book value. The stock has plunged about 75 per cent so far this year on concerns about its €50bn gross non-performing loans, worth nearly a third of its total assets of €160bn.
Italy's hopes of a simple recapitalisation were dashed on Wednesday when the EU's top court backed EU guidelines designed to prevent taxpayers from footing the bill for bailing out stricken lenders.
One senior banker said: "It is a last ditch privately backed attempt to solve the Monte Paschi problem which has been ongoing for years. It may work.
"Otherwise they will have to bail in small investors and Renzi does not want to do that."
Atlante could price the NPLs at about 34 cents, says one senior person involved in the talks, closer to their 40 cents book value, than the 20 cents that is currently considered the market price. The hope is the knock-on effect will start a market for Italy's €360bn of non-performing exposures, equal to a fifth of GDP.
Atlas Proposal in a Nutshell
- €2 billion will provide firepower to securitize at least €10bn of Monte Paschi bad loans
- Atlas will price securities at 34 cents that are valued by the market at 20 cents and everyone will love that price.
- This maneuver will supposedly allow Monte Paschi to raise up to €3.5 billion in capital, something the bank cannot do by itself.
- As the final miracle, scheme will have a knock on effect fixing €360bn of non-performing loans, equal to 20% of Italy's GDP.
Italian Bank Synopsis
April 10: Italy Seeks "Last Resort" Bailout Fund to "Ringfence" Troubled Banks, Meeting Monday; Italy vs. Austria
May 5: Atlas Crumbles Under Weight of Italian Banks
June 30: Italy's Zombie Banks on Death Bed, Bail-Ins Coming?
July 4: Merkel-Renzi Showdown: Italy Threatens to Defy Merkel, Brussels Over bank Bailouts
July 20: Atlas Rescue Phase II: Italy Eyes Another Private Deal to Bail Out Banks (this post).
One senior banker said "It may work".