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Italian banks battle through, German banks in trouble

Following stress-tests, state organised mutual bailouts and recapitalisations Italian banks struggle through whilst clouds darken around banks in Germany.

Daniele Pozzati

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Bruised, but not broke. Having failed the EU-wide stress tests, the Monte dei Paschi di Siena (MPS) has obtained the go-ahead for its rescue plan from the European Central Bank (ECB).

MPS is expected to sell a whopping 9,7 billions euros worth (so to speak) of bad performing loans, and, by the end of the year, to increase its capital by 5 billion euros.

Italy’s fourth largest bank – and the world’s oldest – now has its road map our of the crisis. But fresh questions have arisen as to where exactly the money will come from.

“The net value of the bank is currently 800 million euros,“ notes Panorama, a leading Italian weekly, “a capital increase of 5 billions represents a 6-fold increase of the net value of the bank. This implies asking the public to subscribe the remaining five sixth of new net value.“

Has everybody else done their maths? Don’t hold your breath.

Stress Tests: Germany fared worse

Last Friday the European Banking Authority (EBA) released the results of the stress tests, involving 51 European banks. The tests measure the capital solidity of each bank, and their ability to cope with challenges arising from a baseline and an adverse scenario. The tests have given banks indications as to their need to raise capital, reduce bad loans, etc.

German media were hardly enthusiastic about their banks performance. “And the stress for bank investors goes on,“ read a sarcastic headline by Frankfurter Allgemeine Zeitung. “Deutsche Bank and Commerzbank among Europe’s weakest banks,“ wrote Der Spiegel, “They would be severely affected by a new financial crisis“.

Commerzbank proved the point by issuing a profit warning on Tuesday. This sent European stock exchanges into a roller coaster before it’s Oktoberfest. For Commerzbank, however, the only way seems down: it shares have lost 44% of their value since beginning of the year.

Angela Merkel has so far kept quiet. She still has to reply to Renzi’s remark that “if MPS crisis is one, then Deutsche Bank is one hundred“. In fact, for every million the MPS has in bad loans, the Deutsche Bank has one billion in derivative exposure.

So, Renzi’s remark to Merkel was wrong, after all. The ratio of MPS bad loans to Deutsche Bank’s derivative exposure is not 1:100. It is 1:1000

On Atlas’s shoulders

Steering away from a state-funded bail-out was key to obtain the ECB’s go-ahead. But Italy was just as keen on avoiding the new EU-brokered Bail-in procedure. “MPS has issued 5 Billions euros of subordinated bonds [a high performing, but low-ranking debt in case of liquidation of a bank],” wrote l’Espresso, another Italian weekly, “these bonds, in case of a Bail-In, risk not being reimbursed”

Besides, since April Italy has successfully implemented its own bank-rescuing devices. Four small banks have been saved, all saddled, just as MPS now, by poor performing loans. The Italian Treasury created an alternative investment fund financed – here’s the trick – not by the taxpayer, but by large Italian banks. 

Aptly called Atlas, the rescue fund financial shoulders were able to relieve small banks of 2 Billions euros in bad loans. Technically, Atlas would buy as many bad loans as needed to give the banks involved a new lease of life. The operation was victim of its success. By the time the four banks were rescued, Atlas’s financial shoulders had shrunk to half its initial capacity.

Bring on Jason, aka Atlas 2

To rescue the Monte dei Paschi in the same fashion, i.e. by relieving it from most of its bad loans, a new, dedicated “Fondo Alternativo d’Investimento“ was needed. By July, news begun circulating of an incoming, Treasury-engineered “Jason“ or “Atlas 2“.

The Golden Fleece is the money needed – without state help, and without the daunting Bail-in procedure – to recapitalize the MPS bank. Atlas 2 investment fund will buy most MPS’s bad loans, just as its predecessor did to rescue four local banks.

This double-pillar rescue plan is in line with ECB’s demands: recapitalization and cleaning up of most bad loans. The real issue now is where to find fresh private capital. We are talking of selling bad loans afterall, even if traded at a fraction of their original value. The investors buying it, usually specialized credit-recovery companies, will make a profit if they can recover a larger fraction of the loan than the one at which the loans traded.

Yet Rome remains confident. “In Italy there is no systemic crisis, and our banks, at least those reviewed by the Stress Tests, have done well,” Pierpaolo Baretta, undersecretary for the Economy ministry, told La Stampa, “This is important because it allows us to deal with crisis points with more lucidity. The MPS rescue plan we have agreed with the BCE, once implemented, would put MPS in the middle of the Stress Test ranking”.

No such plans have yet been devised in Germany to rescue the Deutsche Bank. And the ECB Stress Tests did not consider derivative exposure. It is really no wonder that Angela Merkel is, for once, keeping quiet about the rescue deal Rome has just brokered with the ECB.

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Peace on Korean Peninsula within reach, if only Trump can remove Pompeo & Bolton (Video)

The Duran Quick Take: Episode 152.

Alex Christoforou

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RT CrossTalk host Peter Lavelle and The Duran’s Alex Christoforou discuss the results of the Putin-Kim summit in Vladivostok, Russia, aimed at boosting bilateral ties between the two neighboring countries, as well as working to contribute to a final peace settlement on the Korean peninsula.

Putin’s meeting with Kim may prove to be a pivotal diplomatic moment, as North Korea continues to work towards normalizing ties with the U.S. amidst ongoing denuclearization talks with the Trump White House.

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Via the BBC…

Russian President Vladimir Putin has said North Korean leader Kim Jong-un needs international security guarantees if he is to end his nuclear programme.

Such guarantees would need to be offered within a multinational framework, he added, following talks near Vladivostok in Russia’s far east.

Mr Kim praised the summit as a “very meaningful one-on-one exchange”.

Mr Putin said North Korea’s leader was “fairly open” and had “talked freely on all issues that were on the agenda”.

The meeting followed the breakdown of talks between the US and North Korea in February, when Mr Kim met US President Donald Trump in the Vietnamese capital Hanoi.

Those talks reportedly stalled over North Korea’s demand for full economic sanctions relief in return for some denuclearisation commitments – a deal the US was not willing to make.

Speaking after the talks on Thursday, Mr Putin said he wanted to see full denuclearisation on the Korean peninsula.

But he said this could only be achieved through respect for international law.

“We need to restore the power of international law, to return to a state where international law, not the law of the strongest, determines the situation in the world,” he said.

Mr Kim greeted Russian officials warmly when he arrived in Russia on Wednesday.

The North Korean leader was entertained by a brass band in Vladivostok before he got inside a car flanked by bodyguards, who – in now familiar scenes – jogged alongside the vehicle as it departed.

What do we know about the summit?

According to the Russian presidential spokesman, Dmitry Peskov, the Kremlin believes the six-party talks on North Korea, which are currently stalled, are the only efficient way of addressing the issue of nuclear weapons on the peninsula.

Those talks, which began in 2003, involve the two Koreas as well as China, Japan, Russia and the US.

“There are no other efficient international mechanisms at the moment,” Mr Peskov told reporters on Wednesday.

“But, on the other hand, efforts are being made by other countries. Here all efforts merit support as long as they really aim at de-nuclearisation and resolving the problem of the two Koreas.”

What do both sides want?

This visit is being widely viewed as an opportunity for North Korea to show it has powerful allies following the breakdown of the talks with the US in February.

The country has blamed US Secretary of State Mike Pompeo for the collapse of the Hanoi summit. Earlier this month North Korea demanded that Mr Pompeo be removed from nuclear talks, accusing him of “talking nonsense” and asking for someone “more careful” to replace him.

The summit is also an opportunity for Pyongyang to show that its economic future does not depend solely on the US. Mr Kim may try to put pressure on Moscow to ease sanctions.

Analysts say the summit is an opportunity for Russia to show that it is an important player on the Korean peninsula.

President Putin has been eager to meet the North Korean leader for quite some time. Yet amid the two Trump-Kim summits, the Kremlin has been somewhat sidelined.

Russia, like the US and China, is uncomfortable with North Korea being a nuclear state.

How close are Russia and North Korea?

During the Cold War, the Soviet Union (of which Russia is the main successor state) maintained close military and trade links with its communist ally, North Korea, for ideological and strategic reasons.

After the Soviet Union collapsed in 1991, trade links with post-communist Russia shrank and North Korea leaned towards China as its main ally.

Under President Putin, Russia recovered economically and in 2014 he wrote off most of North Korea’s Soviet-era debt in a major goodwill gesture.

While it is arguable how much leverage Russia has with the North today, the communist state still regards it as one of the least hostile foreign powers.

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Putin meets Kim for the first time (Video)

The Duran Quick Take: Episode 151.

Alex Christoforou

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The Duran’s Alex Christoforou and Editor-in-Chief Alexander Mercouris take a look at the historic meeting between Russian President Vladimir Putin and North Korean leader Kim Jong Un in the city of Vladivostok in the Russian Far East.

The meeting marks the first ever summit between the two leaders.

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Via RT…

Leaders of Russia and North Korea sat down for a historic summit in Vladivostok, expressing hope it will revive the peace process in the Korean Peninsula and talks on normalizing relations with the US.

The summit on Russky Island, just off Vladivostok, started a little late because President Vladimir Putin’s flight was delayed. North Korean leader Kim Jong-un had made the trip by train, arriving on Wednesday.

In brief public remarks before the talks, the two leaders expressed hope the summit will help move forward the reconciliation process in the Korean Peninsula. Putin welcomed Kim’s contributions to “normalizing relations” with the US and opening a dialogue with South Korea.

Kim said he hoped the Vladivostok summit would be a “milestone” in the talks about denuclearizing the Korean Peninsula, but also build upon “traditionally friendly ties” between Russia and North Korea.

The North Korean leader also made a point of thanking Putin for flying all the way to Vladivostok for the meeting. The Far East Russian city is only 129 kilometers from the border with North Korea.

The historic summit takes place less than two months after Kim’s second summit with US President Donald Trump in Hanoi fell apart without a breakthrough on denuclearization. The US rejected North Korea’s request for partial sanctions relief in return for moves to dismantle nuclear and missile programs; Washington insists on full disarmament before any sanctions are removed.

Denuclearization of the Korean Peninsula is the main subject of the Kim-Putin summit, but there will also be talks about bilateral relations, trade, and humanitarian aid. The first one-on-one meeting is scheduled to last about an hour, followed by further consultations involving other government officials.

Following the summit, Putin is scheduled to visit China.

 

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Kim And Putin: Changing The State Of The Board In Korea

The future of Korea could be decided by these two men today.

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Authored by Tom Luongo:


Today is a big day for Korea. The first face-to-face summit of Russian President Vladimir Putin and North Korean Leader Kim Jong-un takes place.

At the same time the 2nd annual Belt and Road Forum kicks off in Beijing.

This meeting between Putin and Kim has been in the works for a while but rumors of it only surfaced last week. But don’t let the idea that this was put together at the last minute fool you.

It wasn’t.

The future of Korea could be decided by these two men today.

I know that sounds bold. But hear me out.

And while no one seems to think this meeting is important or that anything of substance will come from it I do. It is exactly the kind of surprise that Putin loves to spring on the world without notice and by doing so change the board state of geopolitics.

  • Russia’s entrance into Syria in 2015, two days after Putin’s historic speech at the U.N. General Assembly
  • 2018’s State of the Union address where he announced hypersonic missiles, embarrassing the U.S. Militiary-Industrial Complex which accelerated the Bolton Doctrine of subjugating the world
  • Flying 2 TU-160 nuclear-armed bombers to Venezuela, creating panic in D.C. leading to the ham-fisted regime change operations there.
  • Nationalization of Yukos.
  • The operation to secure Crimea from U.S. invasion by marines aboard the U.S.S Donald Cook during the Ukrainian uprising against Viktor Yanukovich.

Both Putin and Chinese Premier Xi Jinping are angry at the breakdown of the talks in Hanoi back in February. It was clear that everyone expected that meeting to be a rubber stamp on a deal already agreed to by all parties involved.

In fact the two meetings between Kim and Trump were only possible because Trump convinced them of his sincerity to resolve the ‘denuclearization’ of North Korea which would clear a path to rapid reunification.

It’s why they went along with the U.S.’s increased sanctions on North Korea as administered through the U.N. in 2017.

That John Bolton and Mike Pompeo destroyed those talks and Trump was unwilling or unable (who cares at this point, frankly, useless piece of crap that he is) to stop them embarrassed and betrayed them.

They are now done with Trump.

He’ll get nothing from either of them or Kim until Trump can prove he’s in charge of his administration, which he, clearly, is not.

And they will be moving forward with their own agenda for security and Asian economic integration. So I don’t think the timing of this meeting with that of the Belt and Road Forum is an accident.

And that means moving forward on solving the Korea problem without Trump.

It is clear from the rhetoric of Putin’s top diplomat, the irreplaceable Sergei Lavrov, that Russia’s patience is over. They are no longer interested in what Trump wants and they will now treat the U.S. as a threat, having upped their military stance towards the U.S. to that of “Threat.”

If Bolton wants anything from Russia at this point he best be prepared to start a war or piss off.

This is also why Russia took the gloves off with Ukraine in the run up to the Presidential elections, cutting off energy and machinery exports with Ukraine.

To put paid Putin’s growing impatience with U.S. policies, he just issued the order to allow residents of Lugansk and Donetsk People’s Republics to apply for Russian passports.

This will send Bolton into apoplexy. Angela Merkel of Germany will be none too pleased either. Putin is now playing hardball after years of unfailing politeness.

It’s also why Lavrov finalized arms and port deals all over the Middle East in recent weeks, including those with Lebanon, Egypt, Turkey and India.

Bolton, Pompeo and Pence are ideologues. Trump is a typical Baby Boomer, who lives in a bubble of his own design and believes in an America that never existed.

None of them truly understand the fires they are stoking and simply believe in the Manifest Destiny of the U.S. to rule the world over a dim and barbaric world.

Putin, Xi, Rouhani in Iran and Kim in North Korea are pragmatic men. They understand the realities they live in. This is why I see Putin willing tomorrow to sit down with Kim and flaunt the U.N. sanctions and begin the investment process into North Korea that should have begun last year.

Putin would not be making these moves if he didn’t feel that Bolton was all bark and no bite when it came to actual war with Russia. He also knows that Germany needs him more than he needs Germany so despite the feet-dragging and rhetoric Nordstream 2 will go forward.

Trade is expanding between them despite the continued sanctions.

Putin may be willing to cut a deal with President-elect Zelensky on gas transit later in the year but only if the shelling of the LPR and DPR stops and he guarantees no more incidents in the Sea of Azov. This would also mollify Merkel a bit and make it easier for her politically to get Nordstream 2 over the finish line.

There are moments in history when people go too far. Bolton and Pompeo went too far in Hanoi. He will pay the price now. Putin and Kim will likely agree to something in Vladivostok that no one is expecting and won’t look like much at first.

But the reality is this summit itself marks a turning point in this story that will end with the U.S. being, in Trump’s transactional parlance, a “price taker” since it has so thoroughly failed at being a “price maker.”

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