The latest chapter in Italy’s banking crisis is being played out as UniCredit sells shares to raise 13 billion euros.
The country’s largest lender is having to rebuild its capital reserves as it expects to suffer a loss of 11.8 billion euros for 2016.
The money has disappeared in a welter of loans which Unicredit now accepts will never be repaid.
The new shares are being sold at a big discount.
On Monday, the first day of Italy’s biggest corporate cash call, UniCredit’s shares plunged 6.9 percent and subscription rights fell 18.9 percent as selling by investors who do not plan to buy into the share offer was amplified by a market slump for Italian bonds and banking stocks.
Tuesday saw the shares rebound somewhat, they finished the day up 0.5 percent.
The share sale is part of a restructuring plan that includes offloading 17.7 billion euros worth of bad debts and cutting the number of staff by 14,000 in the next two years.
The degree to which investors buy Unicredit’s shares is a key test of confidence in the industry.
Italian banking crisis
Italy’s banks are stuck with a total of at least 356 billion euros of bad loans – a third of the eurozone’s total. To save weaker lenders some of that debt has been put into a government backed rescue fund called the Atlante fund.
The stronger banks that invested in the fund – including Unicredit – have been writing down the value of those investments. That is complicating efforts to stabilise the nation’s banking sector.
The writedowns put more pressure on Rome, increasing doubts over whether 20 billion euros set aside by the government to stabilise the eurozone’s fourth-biggest banking system will be enough, say analysts. It has already earmarked about a third of that to rescue just one lender, Monte dei Paschi di Siena.
“The 20 billion euros the government has set aside is starting to look like small beer,” said Milan-based banking analyst Vincenzo Longo of brokerage IG.
The finance ministry declined to comment on the Atlante writedowns or whether the government was under more pressure as a result.