An intriguing story about the world’s oldest bank and the possibility of a bank run. I mentioned it over on the Facebook page this morning. If you don’t have time to watch that video (it’s two minutes long) or if you refuse to use Facebook (a valid and worthy position) here’s the short version: Italian banks are getting creamed.
Tuscan-based Monte dei Paschi shares were down 15% on Monday, 14% on Tuesday, and 22% on Wednesday – before shares were suspended from trading. According to Reuters, retail investors and fund managers are worried that the bank is sitting on a substantial pile of bad loans. Depositors took money out of accounts. Yield on subordinated debt maturing in 2020 went from 19% on Tuesday to 24% on Wednesday.
The banking sector of the Italian share market is down 25% year-to-date. And that’s probably why Monte dei Paschi’s shares were suspended. The dreaded “c” word (contagion) was used. But also the dreaded “BR” word (bank run).
“I wouldn’t call it a bank run but definitely outflows”, said Milan-based fund manager Giuseppe Sersale. Hmm. It doesn’t really matter what you call it, does it? How people react to a loss of confidence in banks is what matters. All is proceeding as Tim Price has foreseen.
Category: Economics