Banca Monte dei Paschi di Siena SpA, reputedly the world’s oldest bank, could be headed for massive earnings losses and the first state support among Italian banks since the 1990s.
As horrific and headline-grabbing as this Bloomberg story on Monday suggests, it could be symptomatic of a wider problem.
When the banking crisis began in 2007 and evolved into a sovereign debt crisis a few years later as governments tried to bail out some of them for the wider good of the economy, Italy’s banks were praised for being resistant and not in need of support.
I was among only a handful of commentators at that time who questioned how that could be. How could banks in then-Berlusconi’s Italy weather such a crisis? This was one of the most politically-unstable nations in the European Union. It was and is still the largest debtor by cash in the eurozone, although Germany has flirted with that statistic several times recently itself.
Italy was often the epicentre not for earthquakes but for corruption since 1945.
The banking sector in Italy underwent an enormous consolidation since the 1990s and on a scale similar to that in Britain at the same time.
Many of us have wondered how these consolidations were possible and what was their true cost?
I remember a few days after Diana, Princess of Wales funeral being in Milan, the financial hub of the eurozone’s third-largest economy to be told by a local friend of mine: “Yes, we have a lot of banks. On practically every street corner. But since they have nothing inside of them their only real value is in their real estate.”
No one is accusing the Italian banks of deception. But banks the world over find ways to limit the exposure to bad news. Finally Monte dei Paschi might well be proving you cannot run forever.