Italy is global banking's next Lehman Brothers

Dubai - The Italian banking system faces a ?360 billion bad-loan crisis that could ignite the first run in the global baking system.

As a student of Renaissance art and international finance, I love Florence, the lovely city in Toscana where a young money lender named Cosimo de' Medici financed the Catholic Church and created history's first great global banking empire, a medieval Citigroup/Goldman Sachs. The Medici banking clan became the powerbrokers of Europe, patrons of Leonardo da Vinci, Michelangelo, Donatello and other mutant ninja turtles. The Medici bequeathed the world with three popes, two Regent Queens of France, the Uffizi, the Pitti Palace, the general ledger, double-entry book-keeping and the Brunelleschi Duomo.
 I am now horrified by the grim news from the Italian banking system. The Italian banking system faces a ?360 billion bad-loan crisis that could ignite the first run in the global baking system since Lehman Brothers in 2008, Citi in 1991, Herstatt in 1974 and Creditanstalt in 1931. Contagion is an ugly world and I am now seeing contagion in the 40-50 per cent spike in the credit default swaps of Italian and even German/Club Med banks. Why else has the Euro Stoxx 600 fallen 18 per cent in the past year, the ECB embraced negative interest rates (whatever it takes, Bellissimo, duckies!), Italian bank bond prices are in free fall and Italian regional banks (Banca Popular di Milano) in a panic urge to merge?
 Yet zero plus zero sadly still equals zero. The Italian bank rescue fund Atlas/Atlante (Atlas Shrugged?) is a mere ?5 billion joke. Which investor in his right mind will invest ?50 billion in the equity capital Italian banks so desperately need? The IPO market is dead, except in the fantasies of some Al Ponzi Capital penny stock promoters.
 Italy faces a systemic banking crisis that could lead to sovereign Club Med contagion in the summer of Brexit, Donald Trump and FOMC rate hikes. Yes, Italy is global banking's next Lehman moment. Italian bank shares have fallen 35 per cent in 2016 as it is hugely profitable to short all bank risk assets in the early stages of a global financial crisis. This is the reason that investors have fled European equities for nine successive weeks. This is the reason Dr Janet Yellen is desperately trying to talk down the US dollar. This is the reason 11 million Panama Papers tax dodges and offshore companies were exposed by a law firm doing its thing since 1977. The cognoscenti, the smart money, the hedge fund gunslingers and the sort of diplomats who track the world's money laundries know something that the poor lambs in the GCC private banking world will only find out as they are fleeced for the slaughter. Remember 2008? Watch the dust on parked Ferraris and 7-series Beamers accumulate to learn the true lessons of financial history and be doomed to repeat them. Global panics, like global euphoria, moves at the speed of light in the high-octane, leveraged netherworlds of Haute Finance!
The Italian bank rescue plan will fail. Too little, too late. UniCredito and Intesa Sanpaolo alone cannot be white knights for a banking system saddled with two decades of fraud, greed and mismanagement in La Bella Italia's post-Silvio Caesar's dolce vita. Banco Bunga Bunga has no chance to survive but its death rattles will devastate Wall Street and gut global equities, property and commodities. Italy's largest banks could well be forced to seek government bailouts, the lessons of Ireland, Spain and Iceland in 2009. The Vicenza capital raise, ironically, pressures the credit of its underwriter UniCredito. The banking crisis has crossed the Rubicon since Fitch changed its rating on Italy's largest bank to "negative" on new fears about loan losses and capital position. The EU rules on bank failures do not shift the burden from taxpayers to bondholders until they come into effect later this year. Yet millions of retail investors in Italy are exposed to the largest bank bond market in Europe. Global markets face another Lehman moment in 2016. As the German philosopher Nietzsche warned us, gaze not into the darkness lest the darkness gaze back (credit default swaps, like Shakira's hips, never lie!).     
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