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| Could Matteo Renzi's exit lead to an Italian bank rescue? Could Matteo Renzi's exit lead to an Italian bank rescue? | |
| (about 4 hours later) | |
| Investors’ ability to look on the bright side on political turmoil is remarkable. In the case of Italy, the departure of Matteo Renzi, the market-friendly centre-left prime minister, was followed quickly by the thought that the crisis in the country’s banking system may, counterintuitively, become easier to address. | Investors’ ability to look on the bright side on political turmoil is remarkable. In the case of Italy, the departure of Matteo Renzi, the market-friendly centre-left prime minister, was followed quickly by the thought that the crisis in the country’s banking system may, counterintuitively, become easier to address. |
| That wasn’t last week’s theory, of course. Back then, Renzi’s survival was seen as critical to encouraging private sector investors to cough up billions of euros of new capital to refinance the likes of Banca Monte dei Paschi di Siena and UniCredit. | That wasn’t last week’s theory, of course. Back then, Renzi’s survival was seen as critical to encouraging private sector investors to cough up billions of euros of new capital to refinance the likes of Banca Monte dei Paschi di Siena and UniCredit. |
| This week’s silver lining theory holds that a political vacuum isn’t so bad if it prods the European Central Bank and the eurozone authorities to take a flexible approach to Italy’s banking mess. Ireland’s finance minister, Michael Noonan, captured the new mood: “The president of the European Central Bank, Mario Draghi, is Italian and I can’t envisage a situation in which the ECB under Mario Draghi will let the Italian banks get into difficulty.” | This week’s silver lining theory holds that a political vacuum isn’t so bad if it prods the European Central Bank and the eurozone authorities to take a flexible approach to Italy’s banking mess. Ireland’s finance minister, Michael Noonan, captured the new mood: “The president of the European Central Bank, Mario Draghi, is Italian and I can’t envisage a situation in which the ECB under Mario Draghi will let the Italian banks get into difficulty.” |
| He’s probably right. It seems quite possible that, if MPS struggles to get its required €5bn (£4.2bn) from big private sector investors such as Qatar’s sovereign wealth fund, the bank could be nationalised with ways found to compensate ordinary savers who hold bonds that would be wiped out. | He’s probably right. It seems quite possible that, if MPS struggles to get its required €5bn (£4.2bn) from big private sector investors such as Qatar’s sovereign wealth fund, the bank could be nationalised with ways found to compensate ordinary savers who hold bonds that would be wiped out. |
| A wipeout of senior bondholders is meant to be an essential requirement of state bailouts in the eurozone these days. It causes problems in Italy because so many bondholders are retail savers. But the eurozone’s capacity to bend its own rules is legendary: compensation for some bondholders, even if that is supposed to be a no-no, might be deemed a price worth paying after Renzi’s exit. | A wipeout of senior bondholders is meant to be an essential requirement of state bailouts in the eurozone these days. It causes problems in Italy because so many bondholders are retail savers. But the eurozone’s capacity to bend its own rules is legendary: compensation for some bondholders, even if that is supposed to be a no-no, might be deemed a price worth paying after Renzi’s exit. |
| Yet would that really be a cause for celebration? Only if the health of the Italian banking system is addressed once and for all. But it seems far more likely that a weak Italian government and reluctant eurozone authorities will serve up only half a solution – one big enough to get through the current crisis but insufficient to allow a proper cleansing of the bad loans in the system, which are estimated to stand at €360bn. | Yet would that really be a cause for celebration? Only if the health of the Italian banking system is addressed once and for all. But it seems far more likely that a weak Italian government and reluctant eurozone authorities will serve up only half a solution – one big enough to get through the current crisis but insufficient to allow a proper cleansing of the bad loans in the system, which are estimated to stand at €360bn. |
| If that’s the script, there will little reason to cheer. Italy’s banks would continue to be a drag on the country’s economy and the eurozone authorities’ credibility in a crisis would suffer another knock. | If that’s the script, there will little reason to cheer. Italy’s banks would continue to be a drag on the country’s economy and the eurozone authorities’ credibility in a crisis would suffer another knock. |
| RBS should have its day in court | RBS should have its day in court |
| From Royal Bank of Scotland’s point of view, almost any legal settlement counts as good business these days. The “full and final” deal with three out of five shareholder groups claiming they were misled in the £12bn rights issue in 2008 also looks craftily pitched. | From Royal Bank of Scotland’s point of view, almost any legal settlement counts as good business these days. The “full and final” deal with three out of five shareholder groups claiming they were misled in the £12bn rights issue in 2008 also looks craftily pitched. |
| The terms on offer to the complainants – about 41p for every share bought for about 200p – present the two remaining groups of hold-outs with a choice. They can accept an offer the others deem acceptable; or they can take their chances with litigation that could take half a decade. | The terms on offer to the complainants – about 41p for every share bought for about 200p – present the two remaining groups of hold-outs with a choice. They can accept an offer the others deem acceptable; or they can take their chances with litigation that could take half a decade. |
| Public statements on Monday suggest a willingness to fight on, but we’ll see if that spirit survives the prospect of a lengthy court battle. One suspects cool heads will prevail eventually and that the hold-outs will choose certainty, which would allow RBS to draw a line under the saga at a cost of £800m, roughly in line with the size of its provision. | Public statements on Monday suggest a willingness to fight on, but we’ll see if that spirit survives the prospect of a lengthy court battle. One suspects cool heads will prevail eventually and that the hold-outs will choose certainty, which would allow RBS to draw a line under the saga at a cost of £800m, roughly in line with the size of its provision. |
| Such an outcome would be sensible but also disappointing. We would all be deprived of the opportunity of seeing former RBS chief executive Fred Goodwin and former chairman Sir Tom McKillop in court to defend their portrait of RBS’s financial health in April 2008. RBS has recorded losses every single year since then and the tally stands at more than £50bn. The testimony would be fascinating. | Such an outcome would be sensible but also disappointing. We would all be deprived of the opportunity of seeing former RBS chief executive Fred Goodwin and former chairman Sir Tom McKillop in court to defend their portrait of RBS’s financial health in April 2008. RBS has recorded losses every single year since then and the tally stands at more than £50bn. The testimony would be fascinating. |
| Sports Direct split raises wider issues | Sports Direct split raises wider issues |
| Back in January 2013, Sports Direct and Merrill Lynch, the sportswear chain’s corporate broker, were said to have parted ways by mutual consent. That wasn’t true, according to filings in the high court made by Jeff Blue, who used to be an adviser to the company but is now suing founder Mike Ashley for a £14m bonus he says he was promised. Blue alleges that Merrill Lynch resigned earlier, in autumn 2012, because it was worried that share purchases by the company’s employee benefit trust could breach financial regulations. | Back in January 2013, Sports Direct and Merrill Lynch, the sportswear chain’s corporate broker, were said to have parted ways by mutual consent. That wasn’t true, according to filings in the high court made by Jeff Blue, who used to be an adviser to the company but is now suing founder Mike Ashley for a £14m bonus he says he was promised. Blue alleges that Merrill Lynch resigned earlier, in autumn 2012, because it was worried that share purchases by the company’s employee benefit trust could breach financial regulations. |
| The court can unpick the detail of the claims; Sports Direct didn’t comment on Monday. But the discrepancy over timings should make City regulators think. Corporate brokers play an important role in City life, acting as intermediaries between a company and its shareholders. If one quits – for whatever reason – there ought to be an obligation to announce the fact promptly. | The court can unpick the detail of the claims; Sports Direct didn’t comment on Monday. But the discrepancy over timings should make City regulators think. Corporate brokers play an important role in City life, acting as intermediaries between a company and its shareholders. If one quits – for whatever reason – there ought to be an obligation to announce the fact promptly. |