Back in 2010, as the Greek crisis began, I was up in the mountains of Davos interviewing Joaquin Almunia, the then EU economics commissioner. Eight times I asked him: does the EU have a Plan B if Greece’s banks fail?
After fudging an answer on the first four attempts, saying Plan A was surely going to work, he lost his temper and shouted back: “Please stop asking. There is no Plan B. We only have a Plan A – and it will work.”
That’s a bit rash, I thought. Why wouldn’t you have a Plan B? I have a back-up option for almost everything that could lead to an emergency in my life (please don’t judge – I have a household to manage). If the kids need picking up and I can’t go, I know who to call. The same for when my PC doesn’t start. And for the babysitter, plumber and electrician too. Sometimes I even have a back-up for the back-up.
But the commissioner told me he didn’t want a Plan B because then everyone would assume it was, in fact, Plan A. Just like Tyler Durden’s first rule of Fight Club, in case you haven’t seen the movie: you don’t talk about Fight Club.
That conversation came to mind this week as I was perched on one of the hills of Rome interviewing the cream of Italy’s banking community. Despite the sun shining across the Forum, the mood was closer to storm clouds. Matteo Renzi had just suffered a crushing defeat in Sunday’s referendum on his constitutional reforms. He planned to resign, in an exit that threatened to derail the best prospects for an orderly reboot of Italy’s banking system.
The weakest and most precarious of its banks is Monte dei Paschi di Siena. The world’s oldest lender was deemed Europe’s weakest major bank in stress tests in July, and told by the European Central Bank to clean up its balance sheet. Weakened by derivatives deals that hid losses, Monte Paschi has already received €4bn in taxpayer-funded bailouts and another €8bn from investors since 2009.
The worry is that the political limbo after the resignation of Renzi’s government might thwart Italy’s Plan A: a rather complex €5bn capital increase. The bank’s officials have been in Frankfurt to ask the ECB for more time. Speculation is mounting that they may struggle to find an anchor investor, and even that Monte Paschi could abandon its capital increase.
On Tuesday, an Italian newspaper splashed its front page with the revelation that the country’s Treasury is thinking of a Plan B: nationalisation.
The bank chief executives I spoke to seemed to suggest this might become reality, or at least that the Treasury was right to look into it. So much for not talking about Fight Club, eh?
In truth, they did their best to exude quiet confidence. The head of Intesa Sanpaolo, Carlo Messina, said that Italian banks are now cheap, so “it’s time to look with a different approach at the banking system in Italy – apart from Monte Paschi.” What matters to him and his bank is the real economy: fix that and the banks will recover too.
Unicredit chief executive, Jean Pierre Mustier, has had a rougher ride recently. In his first TV interview since taking the job, he said he’s not worried that market volatility will affect his bank’s overhaul plan. He declined to elaborate on changes he wants to announce in London next week, which may or may not include a capital increase, but did say the bank can show strong developments in all business segments. And yet investors know that, if Monte Paschi can’t raise capital, Unicredit may struggle too.
So what does happen if Italy nationalises Monte Paschi? So far, officials have done everything to avoid that scenario, because it would mean losses for Italian bondholders, which include many ordinary families. There may be a way of getting around that if Italy takes the view that it’s a systemic risk. The government may also look into guaranteeing up to €100,000 for each family invested in Monte Paschi.
It’s no wonder everyone’s talking about Plan B. But as I left for London, I couldn’t help feeling Almunia might have had a point: the more people talk about Plan B, the more they’ll start to assume that it’s really turning into Plan A. Stay tuned.
Francine Lacqua is editor-at-large for Bloomberg Television. These views are not necessarily shared by Bloomberg.