It's hard to fail a test with no pass mark. Yet Banca Monte dei Paschi di Siena still flunked Europe's bank health-check in spectacular fashion, its entire capital base melting away like gelato in the sun.
For a bank that has raised 8 billion euros ($8.9 billion) in capital since 2014, it's an impressive achievement.
The bank's latest-latest-latest plan to fix itself deserves credit for actually targeting the right problem -- its 27.7 billion-euro stock of bad loans.
It will hive those off into a new entity, allowing the lender to start afresh. Without this, it's hard to see another big cash injection making any difference.
But the execution risk in pulling off this complex and costly deal, designed to avoid a painful state rescue that would leave retail creditors (Italian voters) with losses, looks very high. Paschi still has to find the funding for the new vehicle and then raise fresh equity, so keep that prosecco on ice for now.
The new vehicle will take the bad loans off Monte Paschi's books for about 9 billion euros, 33 percent of their face value -- a steep discount, but still more than the 20 percent private sector buyers are typically prepared to offer.
In an ideal world, the financing for the new vehicle would be on stand-by. In Italy, much of the firepower of purpose-built 4.25 billion-euro Atlante rescue fund has already been exhausted mopping up other banks' capital raisings.
Even with the support of Atlante and Monte Paschi's shareholders, the bank will still need to find other investors to provide the remaining 6 billion euros in debt funding needed. The bank is confident it can get there, with a bridge loan if necessary, but there's a risk it may not.
Paschi will then need to raise 5 billion euros of fresh equity to help it cover the losses it will incur when it transfers the loans. Shareholders will again face painful dilution: the bank is seeking more than five times its current depleted market value of 900 million euros.
The banks managing the fundraising have only agreed to underwrite the stock offering if Paschi can successfully get the bad loans off its books. That's not a given -- even with support from Atlante and an offer of a state guarantee on the new vehicle's senior notes.
There's no doubt that if this deal succeeds it could finally be the game-changer Italy has promised but failed to deliver for its banks. But it's a big if.
With a timeline of several months to pull this deal off, the specter of eventual losses for creditors hasn't been banished yet. Italy's long slog to fix its banks isn't over.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Lionel Laurent in London at firstname.lastname@example.org
To contact the editor responsible for this story:
Edward Evans at email@example.com