LEAKED: Who Profits the Most from Italy’s Banking Crisis?

JP Morgan’s deal “would be great for Italy”: CEO Jamie Dimon.

Bank bailouts are a big profitable business. And the collapsing Italian bank Monte dei Paschi di Siena – whose stock is nearly worthless (€0.25), and which was “rescued” twice by investors since 2014, and which now must get an even larger “rescue” or else – has turned into fee nirvana for investment banks, particularly JP Morgan.

Monte dei Paschi was the worst performer in the EBA’s stress test. Under the adverse scenario, its Tier 1 capital ratio plunged into the negative (-2.4%), meaning that its capital would be more than wiped out.

Now there’s another rescue deal in the works, this one far larger than the prior two that have failed so elegantly to solve the bank’s problems. It involves a consortium of banks, led by JP Morgan, according to CEO Jamie Dimon, and in a secondary role, by Italian investment bank Mediobanca. Monte dei Paschi seeks to raise €5 billion in new capital and sell €9.2 billion in bad loans at a deep discount to get them off its books. And the underwriting fees are going to be extraordinarily juicy.

“Three sources involved in the deal” told Reuters that the banks would extract €250 million in underwriting fees from the equity portion of the deal (raising €5 billion).

And there’s more. The deal would also set up a special purpose vehicle (SPV) that would purchase Monte dei Paschi’s bad loans. Funding the SPV would require a €6-billion syndicated bridge loan. JP Morgan is trying to arrange that bridge loan, for which the investment banks could be paid up to €300 million in fees.

Participants in the bridge loan would be stuck with Monte dei Paschi’s nonperforming loans (“toxic” doesn’t even describe them) if they can’t find investors for the SPV. But Dimon, always focused on other people’s welfare, told CNBC that his bank was willing to take that risk: “If we could pull something like that off, that would be great for Italy,” he said.

So combined, €550 million in investment banking fees for the current rescue.

But it would only be the latest installment. In 2015, Monte dei Paschi paid €130 million in fees to a group of investment banks for raising €3 billion in fresh capital, according to Thomson Reuters data. And in 2014, it paid €304 million in fees for its €5 billion capital infusion. So €434 million in total. Those deals were orchestrated by UBS.

With the current fees, the total rises to €984 million ($1.09 billion at today’s exchange rate). With a little extra effort they could hit the €1 billion mark.

The sources told Reuters that the Italian government gave its support to JP Morgan’s deal in July after Dimon met with Italian Prime Minister Matteo Renzi in Rome:

As a result, the U.S. bank – which has Italy’s former finance minister Vittorio Grilli as chairman of its corporate and investment bank in Europe, the Middle East and Africa – will be one of the top earners in Monte dei Paschi’s overhaul if the plan goes ahead, sources said.

But it won’t be easy. Reuters:

The large bill reflects the risk that the deal will not happen because investors are reluctant to sign up to the capital increase due to Monte dei Paschi’s history of failed turnaround plans, uncertain market conditions, and fear of increased exposure to the Eurozone’s third largest economy.

“It is way more expensive than any other equity capital markets (ECM) deal in Europe because of the risk profile of the transaction,” said a London-based analyst who stressed the “country risk” adds to the operational complexity of the transaction.

But none of the dozens of banks contacted by the troubled lender in recent weeks to form an underwriting consortium have made firm commitments to guarantee its proposed €5 billion cap hike, sources said.

“This is a pre-underwriting agreement which by definition is not a hard underwriting and is not a commitment,” is how Mediobanca CEO Alberto Nagel explained it. No commitment, no deal.

Any failure of the world’s oldest bank would damage the entire Italian banking system and could spark contagion across Europe so Prime Minister Matteo Renzi’s government has pressured Italian and international investment banks to make the rescue work, sources said.

A spokesman for the Italian government, however, told Reuters he was not aware of any pressure on banks.

Adding to the size of the fees are the uncertainty surrounding the deal and the lack of financial backing from the Italian government, topped off by the risk of more political and market turmoil if the referendum on constitutional reform flops – in which case Renzi has promised he’d resign. It’s scheduled for October, just before the cash call is supposed to happen in November. Impeccable timing.

But if it works…. There are more such deals being lined up in Italy’s banking crisis, including the efforts by UniCredit, Italy’s largest bank and 6th worst performer in the EU bank stress test, to raise capital and shed its nonperforming loans.

And there may be more such deals across Europe in order to get a handle on the broader European banking crisis. But there’s no crisis at Deutsche Bank, really! Read…  “We’re Not Dangerous”: Deutsche Bank’s Chief Risk Officer

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  35 comments for “LEAKED: Who Profits the Most from Italy’s Banking Crisis?

  1. RE” …“If we could pull something like that off, that would be great for Italy,” …

    This shows the conflation of Italian bankers with Italy.

    Given the two failed “rescues” and the results of “rescues” in other countries, it is apparent that whatever happens, the current and future Italian [and likely EU] taxpayers are about to pay a horrendous price.

    The question therefore reduces to which option is the least costly.

    I suggest, again based on history, that in the aggregate, the least costly option is the immediate nationalization/purchase of Monte dei Paschi at the current stock price, possibly requiring forced selling by any hold-out stockholders. This could be either directly or preferably through a GS/OE [government sponsored/owned enterprise] for example a bank holding company with 100% of the stock owned by the Italian government, which would allow easy “re-privatization” if and when the time comes.

    This would avoid the outrageous “fees” for a third [most likely futile] “rescue,” and would allow rapid changes in the corporate/bank charter to improve governance, replacement of existing officers and directors, and “revision” of [abusive] compensation plans. This would also allow/mandate the new management to declare the non-performing loans to be in default, seize the what collateral exists, and begin the decades long process of liquidation.

    In effect Monte dei Paschi would become its own “bad bank,” and any recovery of capital through the liquidation of collateral would accrue to the bank and not the speculators who purchased the non-performing/defaulted loans at excessive discounts.

    While I have not examined the collateral, it seems plausible that much of this, particularly the real estate, could be used by the national and local governments as the foundation for low cost housing, economic development, etc., avoiding the purchase of land on the private market at inflated prices.

    • WorldBLee says:

      Totally agree that nationalization is the best solution for the people of Italy. However, there’s no upside for the investor class with that so hence the current solution of moving money around, raking in fees, and kicking the problem down the road where undoubtedly the taxpayers will ultimately suffer further.

      • MC says:

        Please no more “nationalizations”. Please.

        Italy has bankruptcy courts like any other civilized country: let them do their job.

      • nhz says:

        Yes, isn’t it great how you can extract 1 billion in fees from a bankrupt entity because you are a bank? And we all know that if the plan succeeds, the US crooks will have another foot in the door with the ECB, allowing them to extract even more EU taxpayer money.

    • Chip Javert says:


      So the Italian state is expected to do the right thing with nationalized bank assets: “…much of this, particularly the real estate, could be used by the national and local governments as the foundation for low cost housing, economic development, etc., avoiding the purchase of land on the private market at inflated prices…”. Good luck with that.

      The very reason Italy is in trouble is it exist to enrich the few at the expense of the taxpayers. Italy doing the right thing simply isn’t an option – they want the Germans or US or ECB or IMF to step in and save them..

      I agree bank fees are egregious, but the real cost of cleaning up Monte dei Paschi is not $500M of bank fees, it’s the $9-10B of bad loans.

      Eliminating highly compensated and invented outsiders from recovering bank assets leaves you with low-level state bureaucrats & bank staff. Bank employees around the world are miserable at recovering assets because they know absolutely zero about how to run (or value) the businesses they represent. Government bureaucrats (especially Italian ones) are even more clueless.

      There’s a reason bad debt resolution is a high paying activity: it’s a messy, crummy, high-risk job. Don’t believe me? Go give it a try (the list of people wanting to do this is amazingly short).

      • Si says:

        “There’s a reason bad debt resolution is a high paying activity: it’s a messy, crummy, high-risk job. Don’t believe me? Go give it a try (the list of people wanting to do this is amazingly short)”.

        I may be missing something but I am not aware of JPM or a GS taking one in the shorts for a deal gone bad. They are backstopped by taxpayers so it is always a one way bet.

        The reason the list is short is because there are only a few insiders who get a look in. Did you catch this little gem?

        “As a result, the U.S. bank – which has Italy’s former finance minister Vittorio Grilli as chairman of its corporate and investment bank in Europe, the Middle East and Africa – will be one of the top earners in Monte dei Paschi’s overhaul if the plan goes ahead”

        • One general rule or principle that seems to cut through all the B/S is “what the taxpayers pay for, the taxpayers should own.”

          As to the “difficulty” in liquidating nonperforming loans, how hard can it be to determine that a loan is delinquent more than say 90 days, issue delinquency notices, get all the paperwork in order, and after another 90 days start foreclosure? To be sure there may be political and/or organized crime interference with the foreclosure action in the courts, but this is a separate problem, as is missing or non-existent paperwork, which require other corrective actions.

          If the other posters are correct [which they seem to be] about an affordable housing shortage simultaneously existing with large numbers of vacant buildings, this indicates an even more serious systemic problem than bank insolvency, both because of the huge amounts of “dead” capital, and because of the significant amounts of socioeconomic/demographic instability generated when large and increasing numbers of young adults are unable to set up their own homes and start families.

        • Chip Javert says:


          You’ve made up that “general rule “out of thin air bank assets are consumer deposits, and government is probably the only worse steward of cash than corrupt banks.

          How about a general rule that government regulators (of which there are many) are supposed to keep banks from going bust (means they need lots of capital and can’t be corrupt) – or they go to jail.

          It’s ok to lose some money, that’s why banks have capital. But if you lend all your money to political favorites and never bother to foreclose, you’re a charity, not a bank.

          Banks are certainly complicit, but so are politicians and regulators.

        • Chip Javert says:


          Yea I caught the gem about Vittorio Grilli – so what? – Italy would sell their soul to ANYBODY (including you) who could scrape up $5B for this crap-hole bank.

          Of course JPM does not take it n the shorts – they aren’t the bank that pissed away depositor money – they’re the guys hired to fix a couple of the problems (like convincing investors to put another $5B into Monte dei Paschi).

          Other than corrupt Italian politicians just giving them another $5B, how do you think they will get more capital? Are you personally going to invest $5B in them? Do you know investors you can talk into investing $5B in them?

          JPM does and that’s worth a lot of money. Disgusting but true.

        • Likely most of the bad loans were made by the bank to Italian mafiosi; after all, obtaining loans that are not repaid is where the real money is.

          Ask Donald Trump (Bill Gates, John D. Rockefeller, Henry Ford, Commodore Vanderbilt, Steve Jobs, Elon Musk, etc. etc. etc … )

          US crooks follow in the footsteps of Italian crooks (and Swiss crooks) until there is nothing left to steal.

          Italy is a nice country and Italians = la dolce vida. They deserve better.

      • Petunia says:

        The reason they can’t put any of these banks into bankruptcy is rehypothication. The collateral is pledged to multiple parties and it is probably not even owned by the bank, but by clients. One bankruptcy can cascade through the entire system, taking down every client and their clients, just like Lehman Brothers.

        These are the fruits of financialization. They are probably waiting for China to become part of the IMF, then they can roll over the entire putrid mess into an SDR. I think that can will squash everything on the road.

        • Chip Javert says:

          There may indeed be some rehypothication; Italian bank regulators probably can’t spell the word, let alone prevent it from happening (simple fix: pass Italian bank law so loan docs define bank as senior lien holder with right of claw-back).

          IMHO the biggest problem is the collateral is crap – no where near the value of the loan. “Projects” get funded after bribes, kickbacks and political contributions; the resulting assets (if any) are crap.

    • MC says:

      Collateral quality is the next big “surprise” in this ongoing saga. There’s widespread suspicion (as reported by La Repubblica, a newspaper near Renzi’s PD and hence with every interest in seeing MPS bailed out) buildings posted as collaterals were in most cases overvalued and sometimes grossly so.

      As I wrote other times one needs to understand the Italian building market has been manipulated since 2008 to keep prices high, both to inflate GDP figures and to improve collateral quality.
      Problem is in 2014 money and will to keep up the charade started to run out: Italy is littered (often literally) with empty buildings looking for renters and buyers, from malls to villas. Prices are starting to fall across the board, with those on commercial and light industrial collapsing.
      Now: while everybody with a building to sell likes to think he has a house in the middle of Vancouver with shady Chinese characters lined up before it, big wands of cash in hand, the reality is the historical inevitability of market dynamics has finally defeated wishful thinking. An oversupplied market is a buyer’s, not a seller’s, market.
      Collateral values will have to be readjusted like all others.

      I’d also like to add a small comment: the Italian governments (national and local) are saddled with mountains of real estate they’d love to sell but nobody wants. The last thing they need is more of it.

      • nhz says:

        Last week a few examples were presented on Dutch TV news, middle class business starters with little of their own money who over the last 10-15 years were able to buy million dollar assets (like a large winery or a small factory) at hugely inflated prices, thanks to easy money from the ECB and probably the EU as well (all kinds of rural subsidies, economic stimulation funds etc.). Many of these businesses quickly proved unproductive and the assets now seem to be worth far less than they paid for them; and economic trouble hasn’t even started for real yet. At least they tried to do something useful with the money, unlike the Greek who spend it on Porsches, luxury yachts and lavish government pensions …

        These people are officially on the hook for the huge loans for the rest of their lives, but you can be sure not much money will be extracted from them. “the bank shouldn’t have given me the money” but of course they were quite happy when they got it and many of them splurged for years on the easy money.

        I’m not sure if there is ‘oversupply’ in Italy RE as many people in their 30’s/40’s are forced to live with their parents out of economic necessity. They would probably prefer to have their own home but can’t afford them at current prices.

        This is the big difference with e.g. Netherlands everyone who can fog a mirror can get a 103% mortgage at 1% or so rate, to buy a 275K euro home. Even single migrants get a complete home for free … no suprise then that there is ‘undersupply’ (made even worse because of the many empty speculator properties). The result is a mortgage debt bubble that is massive compared to Italy. Don’t know which one is worse … in both cases many people who didn’t participate will get the bill for all this madness.

        • MC says:

          Mortgages in Italy are generally ARM. Right now the most common type is Euribor 6 Months + around 1%. Right now Euribor is negative all the way to 12 months and even Eurirs is negative all the way to five years.
          Standards have been considerably lowered (no need for full time employment for mortgages under a certain value for example) yet few bites: my generation already prefers renting to buying (job mobility) and younger ones tend to be wary of debt, something their parents weren’t and aren’t.
          To this it must be added Italy, like France, Spain and Portugal, has very high unemployment among youths. Coupled with bizarre labor laws, this means both job insecurity and low wages… that’s the chief reason these people stay home with their parents.

          Regarding the first part of your comment… I am patiently waiting for liquidation to arrive so I can scoop up some of those assets at bargain prices. 2009 was nice if you had the capital but not as nice as I expected and in the intervening years more distortions to be liquidated built up. Many more.
          You can pick up the occasional bargain here and there if you are alert but it’s hardly a buyer’s market.
          Part of the reason we are living in a dystopian economy is liquidation is not allowed to happen, hence bad calls build upon bad calls and people aren’t “slapped on the wrist” for making those bad calls, or at least not as much as they should.

        • Tim says:

          MC, another trick used is to pull the occupancy permits, to keep inventory off the market, to maintain the illusion of tight supply, preventing the deep discounting. Plunging real estate, bankers won’t allow. That’s if you’re talking real estate type assets.

        • nhz says:

          interesting difference with the Netherlands in how the young generation is taking on debt.

          Maybe the deciding factor is that in Netherlands a government-backed fund guarantees that a homeowner who ‘has to sell’ (due to loss of job, divorce, etc.) will never lose a penny on selling the home – all the potential loss is for the fund (= the taxpayers).

          BTW, I’m generation-X and have plenty of capital, but I prefer renting as well in the current situation, despite the very high rents. If you have low or no income you have to pay cash for a home and the historically low rates work against you. Even 500K buys only a very modest home in a small city, properties that are really attractive (like you would want to stay there for the rest of your life, or which you could rent out with a decent return) are totally unaffordable on a cash basis.

          Italian RE prices already look like ‘firesale’ to me compared to Dutch prices, but I don’t know how representative the prices I’m seeing on TV are (from programs about people who are relocating to Italy etc.). Probably the big cities and elite hotspots in Italy are pricey, I haven’t really looked at that.

          In my country there haven’t been bargains since the early nineties when our housing bubble started going (with at least 10% yoy price gains).

          yes, bankers and politicians don’t want RE prices to go down and they are pulling every trick one can imagine over here to keep things that way.

          For many years our government has subsidized destruction of perfectly fine – slightly outdated – homes on a massive scale. And for many local governments the migrants are another trick to push RE prices further into the sky (free homes for every migrant, so the locals have to wait 10-15 years for a rental property or pay through the nose for their own home). Of course many of the local politicians and elite first buy up the posh homes that are used for migrant housing, before they sell or rent them at a huge markup to the government organisation for migrant housing. Maybe another idea for Italy ;-(

    • nhz says:

      “This would avoid the outrageous “fees” for a third [most likely futile] “rescue,” and would allow rapid changes in the corporate/bank charter to improve governance, replacement of existing officers and directors, and “revision” of [abusive] compensation plans. ”

      We have plenty of experience by now from elsewhere in Europe of what happens after such government takeovers, and I can assure you none of this will happen. After a short pause the bank managers will prove to be even bigger crooks than before. Of course part of the reason is that many of the high level managers are retained despite their criminal track record, because they are ‘indispensable’ for the company.

      “While I have not examined the collateral, it seems plausible that much of this, particularly the real estate, could be used by the national and local governments as the foundation for low cost housing, economic development, etc.,”

      Do you really expect a government institution (from totally corrupt Italy) is going to take away private property on a massive scale? Maybe they will try to do that to the little people, but certainly not to the elites and higher middle class who probably owe most of the debt.

  2. Camerons says:

    Dimon and Blankfein, et al. are just bankers “doing God’s work.”

    • Peter forsyth says:

      God threw jerks like these two out of the temple in the name Jesus Christ. They belong in the sewer with Tony Blair and Bill Clinton.

      • Chip Javert says:

        Actually, Jesus only eliminated commerce from the temple grounds, not from regular commercial venues. Many of these vendors conducted crooked deals (including selling doves) with temple-goers.

        Dimon is not conducting business in any temple; JPM is not the bank that has gone bust 3 times by losing billions in depositors money with bad loans or sold unsophisticated customers “bail-in” bonds.

        Dimon is simply proposing to charge a miserably incompetent bunch of bank managers an arm and a leg to recapitalize a corrupt bank & set up a vehicle for recovering loan collateral.

        You may not like the way this mess has decayed to such a putrid state that high fees are necessary, but anybody thinking this is a quick, sure-fire way to get rich should go to Italy and give it a try. The Italian political, financial & judicial system await your arrival!

        Don’t misunderstand me – I’m not saying this is a good state of affairs or JPM is an angel, I’m just not seeing anybody propose a different (and realistic) solution.

        • nhz says:

          ” The Italian political, financial & judicial system await your arrival!”

          That’s why only God’s banks can sort out this mess: they are above the law and politicians and judges make sure they will profit hugely, whatever happens.

        • Chip Javert says:

          I assume you’re making a sarcastic reference to JPM and other investment banks circling this putrid banking mess.

          However, when your home sewer line breaks, you can’t expect the plumber who fixes it to pay your past water bills.

        • Mike Earussi says:

          Dimon is basically charging them a lot to find suckers stupid enough to give (not loan) money to a bunch of incompetent crooked bankers. Good luck.

        • chip Javert says:


          Absolutely exactly true.

          And if you knew somebody willing to invest $5B in their crap bank, they’d pay you about the same amount.

  3. chris Hauser says:

    more like bailing the boat out of the ocean.

  4. sinbad says:

    Italy needs to dump the Euro and revert to the Lira.
    The number of bad loans will only grow, because Italian business cannot compete at the current Euro value.

    • MC says:

      That’s the solution M5S has been advocating for a few years now.

      Would it work? In a word, no.
      Italy’s problems, very much like France’s, run far deeper than the euro. Adopting a national currency would not solve much: those decades old problems regarding taxation, infrastructures and the job markets would be left untouched at best and made a mess at worst.

      • Meme Imfurst says:

        At the base of worldwide trade, money, ethnic tensions,and incompatible political issues is …
        forced GLOBALISATION.

        It ain’t working and it will not ever work, and it never has worked from the Romans to the Ottman to the USA efforts to control. There is an an old axiom about large getting to big until it fails. Forcing a failed system to endure does nothing but spread the disease.

        I see products from Greece and Italy here in the USA and I know full well that if the price on these products was in the original currency of the country, their products would be in my shopping cart. The Euro at near PAR to the dollar is a force value and giving individual Europeans countries no chance to recover….unless you are Germany.

        Globalized banks and the criminals who control them forged the documentation that GOT these countries into the EU.

        Jail, that is the answer. Long term jail and confiscation of the property of those who created the mess. Iceland did it, chin chin for Iceland.

      • Chip Javert says:


        I agree getting Italy out of the euro and EU is not a silver bullet (most remaining liquid capital would evaporate), but at least Italy would be able to go back to inflating away their national debt.

        Of course if they could sell any new national debt, the price would be sky high.

        • nhz says:

          I guess in that case the problem would be even bigger on a short timescale, because just like the cost for national debt the cost for a mortgage would go sky high compared to what it is now. I’m sure the system would be unable to deal with that and most of the country would go bankrupt (keeping in mind that mortgages are denominated in euros and not in lira …). Politicians would be required to dramatically reduce their spending on bread and circuses and we all know how likely that is to happen …

  5. Mike R says:

    You all don’t understand. JP Morgan is simply the front man. It looks more ‘sellable’ this way. They take the toxic crap and help recapitalize the Italian bank. Then after a year or two when no one cares or is looking, they get these ‘assets’ bailed by the ECB or Fed (doesn’t matter which one).

    So Jamie is doing his $1B acting job. Pretty good so far.

  6. Chicken says:

    “Who Profits the Most from Italy’s Banking Crisis? ”

    The insider criminal enterprise perhaps?

    • Chip Javert says:

      In Italy, that’s called “the government” (Spain and Greece, too).

  7. interesting says:

    “Any failure of the world’s oldest bank would damage the entire Italian banking system and could spark contagion across Europe”

    let me see if i can translate this “message”…..the rest of Europe and the world are being held hostage by the banks….that about sum it up?

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