Italy’s oldest surviving and third largest bank, - established in 1472 - Monte dei Paschi has €160bn in assets and is under significant stress. As of the end of the 3rd quarter it had €23bn in assets at risk of default, compared to just €9bn in equity. Under concerns the bank is on the brink of collapse depositors have been pulling money out of the bank all year, further worsening its situation.
On Thursday at 2pm the bank announced it had failed to raise the €5bn needed. Only managing to raise slightly over €2bn through a debt-for-equity swap offering, putting it down to the referendum defeat earlier this month sparking fresh political turmoil and deterring investors from backing the fundraising. Later the same day, a sigh of relief could be heard throughout Italy as the country’s parliament approved a €20bn rescue fund for Italy’s banking sector.
However, more recently the cost of rescuing the bank escalated from the €5bn first estimated after the European Central Bank told the Italian lender it required €8.8bn to mend its finances. The government is now expected to inject €6.5bn into the bank, increasing its stake from 4% to 70%. The remainder is expected to come from institutional investors seeing their bonds converted into shares, ridding the bank of more than €2bn of debt.
On the back of the agreed bailout the Pound has fallen against the Euro on 6 of the last 7 days, from 1.194 to 1.172, representing an extra £3,000 on a €200,000 transfer. I believe this current trend will continue downwards with a barrier around the 1.15 level for GBP/EUR until the result of the Supreme court hearing expected in mid-January which will have strength to send the rate in either direction.
Whilst the Euro is suffering from a wide range of issues, the US Dollar in contrast is going from strength to strength, recently raising interest rates by 0.25%, and with the possibility for further hikes in 2017 EUR/USD is currently at multi-year lows. A $200,000 transfer today compared to the start of November would gain you an extra €14,000, therefore if you have a requirement it may be wise to take advantage of these levels today.
Both the Pound and Euro are set for a challenging year with opportunities for both buyers and sellers. If you have an upcoming currency requirement, our team of knowledgeable brokers may be what you need in order to make an informed decision. Free to call us on 01494 725 353 or by email at email@example.com.
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