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Tuesday, December 6, 2016

Italy Referendum Vote and The European Banking Crisis

Could Italy set off a European Banking Crisis?

Today is Tuesday 6th December 2016 and we are briefly addressing the question – could Italy set off a European Banking Crisis? So how bad is the situation? Well, Italy's banks have an estimated €360bn worth of contaminated loans with limited easily realizable security on their books that for years they have been trying to restructure. UniCredit, the country's biggest and most important lender, has been looking to raise as much as €13bn in fresh capital and offload €20bn in bad debts. Most vulnerable is Banca Monte dei Paschi di Siena, the world's oldest bank and Italy's third largest, which has the most bruised balance sheet and which requires at least €5bn. Unicredit, for example, owns Hypovereinsbank Germany's fourth or fifth largest bank. Banca Nazionale del Lavoro, Italy's eighth largest lender, is owned by BNP Paribas, France's biggest bank, while Cariparma, the country's 11th largest lender, is owned by Credit Agricole, another French bank. Deutsche Bank, Germany's largest bank, also has a substantial Italian subsidiary. It is certainly going to be a nervous time for market-watchers and investors. Nevertheless we do not believe this is going to spark the much heralded crisis many would have you believe. The SHTF scenario is extremely unlikely. The end of banks as we know it is not going to occur in 2016 nor do we believe in 2017 for that matter – there are plenty of contingency plans in place to smooth over these problems at least for the time being. We do however see it as another obstacle for the EU to get over and another incentive to increase the momentum for those opposed to the Euro.

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