Tuesday, July 26, 2016

World's oldest bank shares halted as the company stands on the brink of collapse

It is indeed troubling when a bank that opened its doors 20 years before Christopher Columbus discovered America, and went on to survive two world wars, the turbulent times of Roman church inquisitions and religious reformations, the renaissance, colonialism, and of course, the conflicts that unified Italy itself, now stands of the brink of bankruptcy 544 years after its inception.

But that is what is happening now to Monte Paschi bank when on July 25, regulators halted trading of the bank's public stock due to an opening 8% drop, on the fears of share price collapse.

Shares of beleaguered Italian lender, Monte dei Paschi (BMDPF) , were suspended from trading early Monday morning after falling by almost 8% after the opening bell. The plunge comes just days ahead of results from the European Banking Authority's most recent stress tests, which are widely expected to reveal a shortfall in Monte dei Paschi's capital buffer. 
The shares fell by  7.6%, to trade as low as €0.28, before being suspended. The stock has fallen by almost 77% in the year to year to date as concerns have built over whether or not the bank can survive in a world where bad loans and low interest rates are eating away at its capital base and European Union regulations make public assistance all but impossible. - The Street
The insolvency of Monte Paschi is a microcosm for all Italian banks, which threaten the global financial system far more than Greece did just two years ago.  This is because Italy's banking system is about eight times greater than its Southern European neighbor, and was catalyst enough in 2008 as part of the PIIGS to help bring about the European financial crisis.

Overall, banking is a lucrative business that can earn a modicum of steady growth by lending to individuals and businesses when interest rates are set at a normal level.  But sadly thanks to the majority of the world's central banks, the dropping of rates to zero and below leaves financial institutions like Monte Paschi to have to speculate on risky assets, and the inevitable result is like we saw with Bear Stearns and Lehman Brothers... complete insolvency when the ponzi schemes eventually collapse.

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