Just how low can Italian bank shares go? That’s the question plaguing the minds of European investors, policy makers, bankers and central bankers. Today the shares of the country’s third largest publicly traded bank, Monte Dei Paschi, plunged 14% to €0.33, their lowest point ever. Two years ago, they ran between €5 and €9.
The reason for the latest plunge was news that the ECB had sent the bank a letter urging it to draw up a plan for tackling its bad-loan burden. The lender is being asked to reduce its load of curdled debt by €10 billion to €14.6 billion by 2018. That’s a big ask even in the best of times, and these are certainly not the best of times for Monte Dei Paschi. According to Bloomberg, its loan loss provisions would represent over 95% of its operating profits.
No bank in Europe has fallen so low, so fast, without completely crashing and burning. On the eve of the global financial crisis, Monte Dei Paschi was worth €15 billion. Now its market cap is just over €1 billion. The only reason it’s still alive today are the multiple taxpayer-funded bailouts it has received, and all they seem to have achieved is to postpone the inevitable (and prolong the taxpayers’ suffering)…
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