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Will They Or Won’t They?

09 December 2016 by lberuti

Once the results of the Italian referendum were known, MONTE’s ( Banca Monte dei Paschi ) board asked to the ECB an extension from the end of the year to Jan. 20 of the deadline set for its recapitalisation exercise “due to the changed reference context”. A delay would have allowed the bank more time to find investors while Italian leaders put a new government in place following the resignation of Prime Minister Matteo Renzi. Early in the afternoon, it emerged that the ECB rejected the bank’s request, increasing the likelihood of a state bailout that would impose losses on shareholders and bondholders. Up to that point, the credit market had been back on the bullish trajectory it has followed since Monday. If the news was not enough to derail the whole market (iTraxx Main closed 1.5bps at 72.5bps and iTraxx Crossover 8bps tighter at 306.5bps), it reversed the trend of iTraxx Financial Senior and Subordinated which closed 1bps wider at 98bps (2bps off the intraday tights) and 3.5bps wider at 225.5bps (12bps off the intraday tights) respectively. On Monday, we might learn how systemically important MONTE really is…