Behind JPMorgan’s Rescue of Italy

As news regarding the failure of majority of banks in Italy surface, there are lurking rumors that the nation will be the next to bid goodby to the EU. Among the main conflicts faced by the country is the low capitalization springing from the huge volume of beneficiaries and depositors who have purchased securities with high income return from banks, which requires elimination as recapitalization is not allowed in the union’s book.

Now, stepping into the story is JP Morgan, which was led by CEO Jamie Dimon. Although known for their focus on controlling costs and careful moves to avoid risky investments, the financial firm is surprising everyone with efforts to assist the state despite the uncertainties it poses, which raises a single question among many in the field of finance: why?

For starters, Dimon and his business has long been connected to Italy, especially with him having deep relations with the state and a great grandfather who is an Italian, The bank basically has been involved in the European domain since 1915. Presently, the Italian banking system is relying heavily on the multinational banking corporation to lift their condition, as it initially offered its hand to Monte dei Paschi, it’s third largest bank that was recently predicted to be headed for a downturn after undergoing a stress test.

JPMorgan has laid out its rescue draft for the commercial bank, which involves a potential for it to earn fees and interests. Dimon is also working on selling worth €28 billion of bad loans, although his commitment to the funding of the vehicle which will be receiving the said loans is yet to be confirmed.

With regards to the matter of Italian administration providing support, their ability to intervene in such cases concerning financial institutions is highly limited, resulting to their excessive dependence on private sectors to lead the sector’s recovery.

Moreover, JPMorgan will be infusing €5B of capital on creditors who will be will agree to convert their debt into equity and stakeholders that will approve of a dilution in their holdings. The rest of the financing will be come from wealth and hedge funds.

Given all of these, another important query arises: How far will Dimon and JPMorgan engage themselves in Italy’s banking industry making their business vulnerable to huge sums of losses?