Mr Market Won’t Buy

Or, as lambert frequently puts it, the dog won’t eat the dog food.

European Bank Shares Fall Out of Bed as Monte dei Paschi Rescue Fails to Reassure
by Yves Smith, Naked Capitalism
August 2, 2016

Last Friday, after EU banking authorities revealed the expected, that Italy’s number three bank, Monte dei Paschi, needed yet another rescue, the press reported on a solution. But even with the Financial Times reporting some of the nitty-gritty details, the comments confirmed that there were … gaps.
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€50 billion face value of dud loans are transferred to an SPV and severely haircut (I believe to 33-34%)

On the liability side is 3 tranches:

• A senior tranche with a government guarantee, sold to third party investors
* Atlante, the quasi public backstop fund, takes the €3 billion junior bond tranche
• The equity tranche goes to current equity investors (not clear how this is funded without it being a variant of a rights offering…..or this may just be muddied reporting from Germany)
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“(F)ourth quarter” means after Italy’s referendum, with the ECB’s new bank liquidity facility tiding over the doddering bank until then if support is needed.

What might that mean? Most underwritings have some form of “extraordinary event” out. Given how difficult this deal is expected to be, I’d expect this clause to be at as permissive as they get in European deals.

So the question is: Would a failed referendum be enough for the underwriters to invoke this clause? If so, that means this deal is even more cynical than the usual Eurocrats’ special.

Whatever the cause, investors are now in a funk about European banks in general and Italian banks in particular.
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The vanishing market value of European banks: charts, showed the impressive decay this year in the prices of Commerzbank, Unicredit, Barclays, Credit Suisse, and DeutscheBank share prices.
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Investors are going to keep hammering banks, pressing EU authorities to relent and let the Italian government fund bailouts, as prime minister Matteo Renzi has sought from the beginning of the year. One colleague argued that if Deutsche Bank’s share price dropped below €10 a share, that would alarm officials so as to induce them to take more aggressive measures. The price is now €11.27, just a tad above the 52 week low of €11.22. The grim tone of the reports today does not lead one to expect a big bounce in the next few days, although there could be a weak relief rally. In other words, this drama is very much in play, and not in a good way.

Well, not in a good way if you’re invested in the European economy, European banks, the concept of the Euro, or the European Union ALL of which seem likely to collapse in ways completely unrelated to Brexit except psychologically and in every practical analysis TOTALLY THE RESPONSIBILITY OF EUROPEAN ELITES AND THEIR .001% BILLIONAIRE FAVORING AUSTERITY POLICIES.

The Authors of this failure are not some faceless class of “taker” peons, they are the arrogant ignorant assholes so secure in their pampered priviledged aristocracy of meaningless “merit” that they can’t smell the stench of the Seine.

Well it’s 1789 dopes. Get ready for your haircut by National Razor to be high, tight, and permanent.

La terreur n’est autre chose que la justice prompte, sévère, inflexible; elle est donc une émanation de la vertu ; elle est moins un principe particulier, qu’une conséquence du principe général de la démocratie, appliqué aux plus pressants besoins de la patrie.