The First Casualty Of Brexit: Italy Prepares €40 Billion Bank Bailout
- The First Casualty Of Brexit: Italy Prepares €40 Billion Bank Bailout
by Tyler Durden, www.zerohedge.com
Barely has the market had time to digest last week’s Brexit vote by the UK, a vote which may never actually be implemented if the “sturm und drang” campaign unleashed by the EU and the ECB on UK capital markets succeeds in changing the mind of enough “Leavers” to the point that the entire referendum is called off and Boris Johnson never triggers the Article 50 clause, and already Europe’s most financially troubled nation, Italy, is using Brexit as a pretext to unleash a €40 billion ($44 billion) bailout of its insolvent banks.
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As the WSJ reported earlier, the Italian government is considering a capital injection for the country’s banking system, after Italian lenders were hit by a sharp selloff in banking stocks Friday, triggered by Britain’s vote to leave the European Union. Of course, Brexit has nothing to do with it: instead, as everyone knows by now, Italy’s banks are beset with €360 billion (and rising) in bad loans, some 18% of total bank balance sheets, chronically poor profitability amid record-low interest rates, thin capital buffers and high costs. It was precisely these concerns that the recently created Atlante “bad bank” was supposed to address until it became painfully obvious that its total war chest of €4.25 was woefully inadequate to put even the smallest dent on Italian bank insolvency.
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According to Ambrose Evans-Pritchard, the country is the first serious casualty of Brexit contagion and a reminder that the economic destinies of Britain and the rest of Europe are intimately entwined. Morgan Stanley warned in a new report that eurozone GDP would contract by almost as much as British GDP in a “high stress scenario”. “When Britain sneezes, Italy catches a cold. It is the weakest link in the European chain,” said Lorenzo Codogno, former director-general of the Italian treasury and now at LC Macro Advisors.
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