ROME – Monte dei Paschi di Siena, Italy’s third-largest bank, plans to offer investors as much as 5 billion euros, or $6.9 billion, in new stock as it fights to avoid nationalization and braces for stress tests of its balance sheet by European regulators, the lender announced on Friday.http://dealbook.nytimes.com/...
How old is this bank, by the way?
Monte dei Paschi, founded in 1472, is considered the world’s oldest bank.
What is this bank's immediate problem?
Monte dei Paschi is facing a deadline imposed by the European Union to begin repaying €4.1 billion in bailout money this year. Failure to do so would mean that it must repay the interest in shares, effectively becoming nationalized.It still hasn't repaid it's bailout funds - something all the big US banks did back in 2009.
So if it can't cough up the repayment the regulators (the EU in this case) will take back it's stake in the form of equity (stock) thus diluting it enough to become the principle owner.
Now, what would happen under Dodd-Frank? Liquidation. Barney Frank's "death panel for banks".
Title II, the Orderly Liquidation provision of the Dodd-Frank Act, provides a process to quickly and efficiently liquidate a large, complex financial company that is close to failing. Title II provides an alternative to bankruptcy, in which the Federal Deposit Insurance Corporation (FDIC) is appointed as a receiver to carry out the liquidation and wind-up of the company. The FDIC is given certain powers as receiver, and a three to five year time frame in which to finish the liquidation process. Title II is aimed at protecting the financial stability of the American economy, forcing shareholders and creditors to bear the losses of the failed financial company, removing management that was responsible for the financial condition of the company, and ensuring that payout to claimants is at least as much as the claimants would have received under a bankruptcy liquidation.http://www.law.cornell.edu/...
So, Citi recently failed its stress test. Guess what they will do? They will go find adequate capital to avoid the death penalty.
Who says we didn't get reform?