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Italy: The Next Bail-In Is Coming

Sept. 22, 2017 (EIRNS)—Banca Carige (Savings Bank of Genoa) has started negotiations with bondholders for a conversion of bonds into shares. This is similar to the procedure applied in the case of the three Veneto banks and in the Monte dei Paschi (MPS) case. "Burden sharing" is the official name of the game, or bail-in light. This is in preparation for government aid under European Union rules. Carige has also announced the layoff of 1,000 employees and the shutdown of 120 counters.

A look at MPS gives a hint of how much bondholders will lose.

Yesterday, an auction on derivatives (CDS) for MPS resulted in a €4.30 market price for shares which is half of the nominal value of shares offered in conversion to bondholders (€8.65). The price is also one-third lower than the €6.49 price paid by the government in the recapitalization action at the end of July.

This means that bondholders have already lost half of their money, and that MPS has a capitalization of only €4.9 billion, way below the threshold of €8.8 billion established by the European Central Bank and the European Banking Authority. That is, expect the ECB to demand to fill the gap sooner or later.

In a related development, liquidators for one of the tree Veneto banks, Veneto Banca, have seized a €30 million fund destined by the managers to refund some retail customers, and included it in the "burden sharing" chest.