Italian banks’ Atlas could fail to hold up the sky

One year ago, Cyceon wrote that being Prime Minister Matteo Renzi in Italy wasn’t easy. Well it has become even more difficult as Italian banks’ stocks tumbled after 150-year-old Banca Popolare di Vicenza IPO failed. The pressure built up after the Italian government and a privately funded investment vehicle agreed on the creation of a backstop fund, EUR 4.25 billion Atlas, to support the urgently needed recapitalization of weak lenders.

Italian banks like Unicredit, Intesa, Monte Paschi di Siena fell by as much as 3% to 6% in the sole intraday session of May 3, 2016. This meltdown didn’t surprise strategist and financial planner Maurizio Giuliani who warned Cyceon as soon as April 30, 2016 that Atlas would be a failure since it collected EUR 2.25 billion less than expected.

“The great fear now is the contagion, will the Atlas umbrella hold?” Giuliani wondered like he knew the answer already. Indeed, Italy’s banking system is largely funded by ordinary citizens via deposits, bonds and shares. Next in line could well be Unicredit whose share could fall to as low as just EUR 1 and then be forced to sell the jewels like Fineco, “because it had to ensure the success of Vicenza IPO,” Giuliani added.

After this missing initial step, the remaining EUR 2.9 billion of Atlas could prove ridiculously small in face of the tremendous challenges ahead. “EUR 420 billion in savings of Italian families are at risk,” Giuliani stressed. Italy’s banking crisis could be Greece’s at the power of 10.