Trading in UniCredit SpA, Italy's largest bank, was suspended for the second day running Thursday after shares tumbled further in the wake of a heavily-discounted share offering.
UniCredit shares dropped some 10 percent Thursday before trading was halted with the bank’s share price standing at €4.86 ($6.29). On Wednesday, its share price slid 15 percent after the bank priced the new shares it’s offering to shareholders at a big discount.
UniCredit is trying to raise €7.5 billion ($9.7 billion) to meet new European requirements for banks to thicken their financial cushions against possible losses. The new shares being offered as part of the rights issue have been priced at a 69 percent discount to Tuesday’s closing price.
The aim of UniCredit’s rights issue is to help the bank shore up its capital reserves, in line with European regulatory demands. Last month, industry regulator, the European Banking Authority, said the bank needed to raise around €8 billion.
UniCredit CEO Federico Ghizzoni told Il Sole 24 Ore newspaper he was confident the market would underwrite nearly all of the rights issue and that such a "technical reaction" was expected. He said he was "optimistic" that the capital increase would be successful.
Banks are an integral part of Europe’s debt crisis because they hold government bonds. A default or steep fall in the value of government bonds could inflict heavy losses on banks and choke off credit to the European economy.
That’s why the regulatory authorities want Europe’s banks to raise their buffers by €115 billion (149 billion) over the next few months. The worry in the markets is that other banks, that need to raise cash too, will have to offer keen prices too and that’s why banks outside of Italy are struggling too.
France’s Societe Generale SA was down 4 percent, for example.
Italy, the recent focus of the debt crisis, must borrow to cover €53 billion ($69 billion) in expiring debt in the first quarter alone in debt auctions beginning Jan. 13.
That will test whether the government of new Prime Minister Mario Monti is making progress in regaining market confidence through budget cuts and efforts to improve weak economic growth.
