Italian banks are trading at enormous discounts to book value.
That implies you believe the book values of Italian banks fully factors in
nonperforming loans.
I don’t and neither does reader “Lars” from Europe who pinged me with
these thoughts.
Hi Mish
We get new Target2 numbers on Monday. Apart from you, nobody seems to be
interested in these numbers. Draghi is using a central bank settlement system
to finance European banks to the tune of €820 billion, and nobody seems to
care. I tried to alert Richard Duncan to the fact that he had forgotten to
include Target2 in his numbers, to no avail.
I suspect that Draghi is hoping that the €80 billion monthly QE will help
to reduce the Target2 imbalance. Target2 is a financing method used by Draghi
to circumvent the democratic process and given the minimal attention Target2
has gotten he has succeeded. But in reality this is sophisticated
fraud. Draghi will also resume LTRO, an indication that € banks
have funding problems.
The Italian central bank has under Target2 borrowed €250 billion, mainly
from Bundesbank. The loan is unsecured, not a single € in collateral.
The 250 billion is then lent to Italian banks, all of them insolvent.
Unicredit, the no 1 bank, has book equity end 2015 of €50 billion. The
share price was €3.37 yesterday and with 5.979 billion shares outstanding the
market value (market cap) of the equity is € 20.192 billion. Monte Dei Paschi
has book equity of €9.5 billion and a market cap of € 2.07 billion.
So , based on the free price discovery mechanism, the market´s (smart
money) verdict is that Unicredit´s equity is not worth 50 but 20 billion.
All the major Italian banks are in the same situation.
So if one combines the fact that all Italian banks trade at a deep
discount to book value (price/book around 0.4 for Unicredit and 0.22 for
Monte) , the fact that NPLs are record high and the fact that the banks
funding take place through ECBs backdoor, we seem to have a problem.
Mainstream media is not interested in numbers and facts. But that´s not
important because the smart money has given its verdict and the only question
is how long Draghi can keep his show on the road.
Regards
Lars
I will post a Target2 update on Monday or Tuesday.
