The Italian financial meltdown that we have been waiting for has finally arrived. For quite a long time I have been warning my readers to watch Italy, and now people are starting to understand why. Italian banking stocks continued their collapse for a fifth consecutive day on Wednesday, and nervous Italians are beginning to quietly pull large amounts of money out of the banks. In particular, Monte dei Paschi is a complete and utter basket case at this point. A staggering one-third of their loans are “non-performing”, and the stock price has fallen a staggering 57 percent since 2016 began. Monte dei Paschi is going to need a major bailout, and the same thing could be said about almost all of the largest Italian banks. But where is the money going to come from?
As rumors of trouble at Monte dei Paschi spread, Italians are getting money out of the bank while they still can. The following comes from the Daily Mail…
Some Monte dei Paschi customers have been pulling savings out of the Italian bank, its chief executive said on Wednesday, as it faces a crisis over a mountain of bad loans that has wiped nearly 60 percent off its market value this year.
CEO Fabrizio Viola did not say how much money savers had withdrawn, or when the outflow began, though he said the fall in deposits was “limited” and that the bank could cope with it as he sought to reassure customers and investors.
Italian bank shares have lost 24 percent since the beginning of 2016 as investors, already rattled about global economic growth, have sold out of a sector with low profitability and about 200 billion euros ($218 billion) of loans that are unlikely to be repaid.
And investors are pulling money out of Italian banking stocks at an alarming pace as well. According to the Telegraph, Unicredit is down 27 percent since the start of 2016 and Monte dei Paschi has plunged a total of 57 percent so far this month…
Italian banking stocks crashed again on Wednesday, continuing a month of poor performance and raising questions over the sustainability of the industry in its current structure – and even if it could end up in the same boat as Greece’s banking sector.
Long-suffering Monte dei Paschi’s stock dived another 18.5pc on the day, meaning the shares are down 57pc so far this month.
Even much more stable banks are witnessing a flight of investors – Unicredit’s shares are down 6pc on the day and 27pc since the start of the year.
Overall, the FTSE Italia All-Share Banks Index has plummeted 21 percent over the first three weeks of this year.
We normally only see numbers like this during a major financial crisis, and that is precisely what is happening.
Of course trouble has been building at Italian banks for a very long time. They have been exceedingly reckless, and almost all of them are absolutely saturated with bad loans at this point. Here is more from the Telegraph…
The analysts estimate the average Texas ratio – a measure of bad loans versus a bank’s capital buffers – of Italian banks stands at around 105pc, compared with just over 50pc in much of the eurozone.
A Bloomberg analysis puts Monte dei Paschi’s non-performing loans at almost one-third of its asset book, followed by Banca Carige at 27.4pc and Banco Popolare at 26.2pc, all cripplingly high levels.
And all of this comes in the context of a much broader European financial meltdown. The carnage that began at the turn of the year continued on Wednesday. Here are some of the specific numbers from Business Insider…
European markets dived into the red on Wednesday morning, and they didn’t come back out.
All major stock indexes on the continent had a pretty horrible day, with all but two, the DAX 30 in Germany, and the AEX in the Netherlands, falling more than 3%. The FTSE MIB in Italy, and the FTSE100 here in the UK are the biggest losers.
At the close Italy’s benchmark was down by 4.95% to 17,946 points, while the FTSE100 fell 3.39%, or 199 points.
At this point, almost all of the major European indexes have entered bear market territory.
Just check out how far stocks have fallen in some of the largest European nations since their 52-week peak…
United Kingdom: down 20 percent
Netherlands: down 22 percent
France: down 22 percent
Germany: down 24 percent
Turkey: down 24 percent
Italy: down 25 percent
Sweden: down 25 percent
Poland: down 26 percent
Portugal: down 28 percent
Spain: down 30 percent
Greece: down 44 percent
Overall, global stocks have now officially entered a bear market, and panic is spreading fast.
In the U.S., our markets are still in better shape than most of the rest of the world, so we don’t necessarily understand the severity of the situation quite yet. But let me assure you that what we are facing is incredibly serious. Even at the best of times, most of the major banks in Europe and Asia were on shaky ground, and all it was going to take was a major financial downturn for them to start toppling like dominoes.
Many people are now beginning to speculate that Italy may be the next Greece. Those that are saying this don’t truly grasp what is going on.
Greece is the 44th largest economy on the planet.
Italy is the 8th.
We have already seen how the rest of Europe really struggled to come up with a bailout for tiny Greece.
What in the world are they going to do when Italy goes down?
And of course Italy is not the only one that is going to need help. Financial meltdowns are now erupting all over the continent.
Those that believed that the European crisis was “finished” were sadly mistaken.
The European crisis is not over.
The truth is that the European crisis is just beginning.
Italy will probably be first, but economic and financial problems are going to spread like wildfire.
And by the time it is all said and done, European society is going to be fundamentally altered, trillions of euros will be lost, and the face of the continent will change.