A last minute attempt to get large Italian banks to provide over a billion euros for two troubled regional banks failed notes the analysis team at BBH.
“A precautionary recapitalization by the government cannot take place. One of the banks (Veneto Banca) debt payment due this coming week was postponed by the EC. The banks appear to be headed for one of the three outcomes of the Bank Recovery and Resolution Directive (BRRD): liquidation, wind-down, resolution. The BRRD offers several tools for the resolution, among which is a bad bank-good bank arrangement. Initial press reports suggest Italian officials, who had been suggesting an optimistic outcome much of last week, seem to refer this latter course as the next best.”
“On a side note, Moody’s downgraded Australia’s four largest banks today from Aa2 to Aa3. The agency warned that surging home prices and rising household debt pose a threat to the banking industry. It said a sharp housing downturn was not its base case, but warned that the tail risk of such an event has become “a material consideration.” Last month, S&P made similar downgrades to Australian banks, but spared the largest four on expectations of government support if a banking crisis were to be seen.”
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