Daily Management Review

JPMorgan proposed a plan to rescue the Italian banks


07/18/2016


Three months ago, when the banking problems in Italy resumed, it was decided to use Atlas financial assistance fund. However, this did not rectify the situation.



Dawid Skalec
Dawid Skalec
Indeed, Atlas fund, volume of which amounted to 5 billion euros, could not save the Italian banks. They, besides the point, have accumulated "bad" debts in the amount of 360 billion euros.

In late June, after the British citizens have decided to withdraw from the EU, lack of capitalization and the problem of "bad" debts of banks again came to the fore in Italy. Judging by the Italian authorities’ desperate attempts to reach out to Brussels, there is an urgent need to do something.

Deutsche Bank and the ECB has repeatedly called to save Italy, and expressed willingness to join the process. However, Merkel, Schäuble and Dijsselbloem rejected all proposals.

Nevertheless, JPMorgan was appointed by the Italian government to develop a plan to create a bank that would buy bad loans of other banks for about 20% of the nominal value.

Roughly speaking, it is proposed to create a second bank of "bad" assets; just like Atlas, only 10 times greater. Redemption of all "bad" debts will require about 50 billion euros. At the same time, taxpayers may lose up to 10 billion euros.

Supported by the state, the bank will then either hold the loans, if there is the possibility of repayment from the part of customers, or sell to other investors.

Apart from the very large risk of loss of taxpayers' funds, there is still a possibility that the plan may not be implemented, partly because other ideas are also discussed. In addition, the Italian Government is currently at loggerheads with the EU.

Under current rules, a bailout for banks has to be sponsored by private investors to avoid the possibility of a new financial crisis. At the same time, the Italian government requires that households should be minimally affected by the implementation of the rescue program, and this can become a stumbling block. As it turned out, quite many households practice such investments.

So far, Brussels and Germany did not comment on plans for Italy, so it is unclear whether this scheme will be implemented. But it is unlikely we will hear something concrete before publication of the EU stress tests.

source: zerohedge.com






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