ML-Implode News - Good Lessons From One Bad Deal That Destroyed Four Banks

The crisis engulfing the world's oldest bank, Italy's Banca Monte dei Paschi di Siena, has many causes, but its roots go back nine years to a lunch at a fancy Geneva hotel. It was there, at the Four Seasons Hotel des Bergues, that three of Europe's top bankers gathered to plot a hostile bid to buy and break up Dutch bank ABN Amro in what became the biggest bank takeover, worth â‚¬71 billion (then $101 billion).
The deal will go down as one of humankind's worst business transactions. It led to government rescues of what was then the biggest bank in the world, Royal Bank of Scotland, and the biggest bank in Belgium, Fortis, as well as taking out Dutch bank SNS Reaal. Now its legacyÂ threatens the oldest bank in the world.
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Monte dei Paschi, after overpaying wildly, has been short of capital ever since, making it even harder to cope with years of Italian recessions.

The biggest lesson is that the good times don't last forever. RBS, Fortis and Monte dei Paschi took on too much debt to buy parts of ABN, leaving them even weaker than the rest of the overstretched banking system when the bust came.

Eight years into one of the longest U.S. economic expansions, companies have again been piling on leverage and returning to takeovers. But the bet has been different to 2000 or 2007. In the dot-com bubble shares were wildly overvalued, so companies financed deals mainly by issuing new shares. In the credit bubble there was unending demand for debt, so deals were predominantly debt financed. This time round, both bonds and equities look expensive on many measures, and the dollar value of deals financed by a mix of debt and equity is the highest on record, according to Dealogic data.

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Good Lessons From One Bad Deal That Destroyed Four Banks