By issuing guarantees on Step 2 of the rescue plan for Monte dei Paschi di Siena, the Italian government is de facto bailing out the banks that will be part of Step 1, which is the EU5 billion capital increase. In fact, those banks shall buy up to EU5 billion of new MPS shares, only on the condition that the bank gets rid of EU27 billions in nonperforming loans (NPLs), thus promising market “profitability.” This will occur through a fund called Atlante, which will buy those NPLs at 30% of their value, and issue securities guaranteed by the Italian government at a 6% interest.
The members of the consortium which participate in Step 1 are: J.P. Morgan, Mediobanca, Goldman Sachs, Santander, Citi, Credit Suisse, Deutsche Bank and Bank of America Merrill Lynch.
Although it is not yet known who shall buy those securities, it might well be that some, if not all of these banks will be part of the game. So far, it has been announced that Italian private pension funds will buy half a billion securities. However, the Association of Tax Consultants (ADC) has pulled out of the operation. The ADC sent a letter to the Prime Minister stating, “We will not allow one single cent to be taken out of our pension fund for purposes other than for paying our pensions. …. We are not cows to be milked.”
Since the procedure to obtain government guarantees for Atlante’s senior securities takes some time, the Italian government is considering to issue a bridge loan.
Reached for a comment, Lyndon LaRouche said: “Cancel those government guarantees.” Furthermore, he said, “The game is collapsing, because they played the game too long. They had no right to do that, but they all tried to get bets, and they found out that they could not get it. Somebody else complained that their schemes had caused the system to fall. That’s what happened.”
The stress tests “are not dealing with the reality of the problem. They deny reality. Take the Italian thing, which is horrible. They are saying: We the rich, are becoming more rich. And the other part of the ordinary rich won’t be rich any more.”