Why Italy’s Banking Crisis is Spiraling to Heck

By Don Quijones

€4.8 billion window-dressing to cover a growing €360 billion hole

Things have got so serious in Italy that the only two things propping up the country’s crumbling banking sector — apart from the last few remaining crumbs of public faith in the system — are two inadequately capitalized bad bank funds, Atlante I and the imaginatively named Atlante II.

Both funds are operated by a deeply opaque Luxembourg-based private firm called Quaestio SGR. The firm is a wholly owned subsidiary of Quaestio Holding S.A, which is itself jointly owned by a bizarre mishmash of organizations, including Fondazione Cariplo (37.65%), an influential “charitable” banking foundation; Fondazione Cassa dei Risparmi di Forlì (6.75%), a regional savings bank; Cassa Italiana di Previdenza e Assistenza dei Geometri liberi professionisti (18%), a bank for professional freelance surveyors (no, seriously); Locke S.r.l. (22%), an obscure Milan-based holding company; and Direzione Generale Opere Don Bosco (15.60%), a Roman Catholic religious institute. No surprises there.

[Hat tip to regular WOLF STREET reader and commenter MC for pointing outsome of the peculiarities of Italy’s two bad banks]

Atlante I’s funds are largely privately sourced, coming primarily from Italy’s largest banks. The two biggest banks, Unicredit and Intesa San Paolo,both pledged around a billion euros a piece. A further €500 million was provided by a gaggle of smaller banks and another €500 million was pledged by Cassa Depositi e Prestiti (CDP for short), an almost wholly state-owned financial institution. With a little extra help from certain foreign investors, Atlante was able to claw together some €4.8 billion — to help solve a €360 bad-debt problem.

So far, €1.5 billion of those funds have been used to sub-underwrite the capital expansion and failed IPO of Banco Popolare di Vicenza. Investor demand for BPVi’s new stock was so lackluster that the bank ended up lending money to customers on the proviso that they used some of the funds to buy the bank’s shares, a practice that’s not just deeply unethical; it’s against the law, even in Italy. Yet despite such underhand enticements, the IPO still flopped.

Another €1 billion of Atlante’s funds went into Veneto Banca after its public launch also failed. A further €3.75 billion was used to rescue four smaller banks, Banca Marche, Banca Etruria, CariChieti and CariFerrara in November. The four banks are supposedly now in the process of being sold off to private investors. But just as happened with Veneto Banca, no private investor with an ounce of intelligence will go near them, out of fear that the banks will need further write downs of their problem loans.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.