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Showdown on Italian Banking Crisis

Dec. 10, 2016 (EIRNS)—The crisis of Monte dei Paschi di Siena (MPS) has dramatically worsened since the (still unofficial) report that the European Central Bank (ECB) has rejected the bank’s request to postpone the deadline for its recapitalization, currently fixed for Dec. 31. It is physically impossible for MPS to implement the so-called "market solution" by that date, since so-called investors have withdrawn from the original plan concocted by JP Morgan.

An MPS insolvency would unleash a systemic crisis. The European Union and the ECB want Italy to enforce a bail-in and then go to the European Stability Mechanism (ESM) and surrender to the Troika for a bailout, as Greece was forced to do earlier.

However, the Italian government is rumored to be considering a nationalization, by purchasing up to €4 billion worth of subordinate bonds, and turning them into shares. If confirmed, this would be the opposite of bail-in, i.e. a bailout of depositors, and a violation of EU rules. Brussels and Frankfurt (the ECB headquarters) won’t be amused.

This won’t solve the problem of non-performing loans (NPLs); the next step should be to fire and prosecute the management and sort out the mess in the bank, according to procedures similar to those illustrated by Lyndon LaRouche and Japanese economist Daisuke Kotegawa for Deutsche Bank.

Evidence of the most blatant corruption of the current management, which was put in by JP Morgan as a condition for the (failed) recapitalization plan, is the report that MPS head Marco Morelli plans to pay JP Morgan a fee of €450 million. Consumer association Codacons filed a complaint with the Anti-Corruption Authority Dec. 7

Further, the German financial regulator BaFin, according to Bloomberg, found evidence that Deutsche Bank rigged "indexes" in the case of the famous derivative sold to MPS. Basically, Bafin came to the same conclusion as Italian investigators, that DB concocted a scheme to help MPS to conceal losses after its disastrous acquisition of Antonveneta bank.

The purchase of Antonveneta cost MPS a total of €18 billion, and MPS concealed those losses through derivative schemes purchased from Deutsche Bank and Nomura. An investigative committee of the Tuscany Regional Council came to the conclusion that the Antonveneta purchase and the subsequent derivative losses are the main source of MPS’s troubles today.

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