UniCredit Drops After Announcing 43% Discount on $9.8 Billion Rights Offer

UniCredit SpA (UCG) fell the most in 23 years in Milan after Italy’s biggest bank said it will sell 7.5 billion euros ($9.7 billion) of shares at 43 percent less than yesterday’s closing price, excluding the value of rights.

Investors will be offered two new shares for 1.943 euros each for every one they already hold, the Milan-based lender said in a statement today. That exceeds the 30 percent discount offered by Commerzbank AG in its 5.3 billion-euro rights offer last May and the 39 percent discount when HSBC Holdings Plc raised about $17.7 billion in March 2009.

“The discount is the highest seen in the European banking sector over the last few months,” Luigi Tramontana, an analyst at Banca Akros who has a hold recommendation on the stock, wrote in a note today. “We remain prudent on the stock.”

Chief Executive Officer Federico Ghizzoni is cutting costs and reducing staff to strengthen the bank’s finances and boost profitability after posting a third-quarter loss of 10.6 billion euros. UniCredit is raising the money to plug a capital shortfall and comply with European Banking Authority targets.

UniCredit shares fell more than 14 percent, the most since December 1988, to 5.42 euros in Milan trading. The stock has dropped by about one third since the lender announced the offering on Nov. 14. That values the bank at 10.5 billion euros.

Investors Subscribe

Investors including Fondazione CRT, Allianz SE and Carimonte Holding have already said they will subscribe to their rights for 14 percent of the offer, the lender said in the statement. Shareholders accounting for another 10 percent of the offer have initiated procedures to participate, without making any binding commitments, the bank said.

The government’s financial security committee allowed the Central Bank of Libya to participate in the offering to maintain its 5 percent stake in the lender, people with knowledge of the matter said Dec. 15.

The offer price reflects “current market conditions,” UniCredit said, adding that the Italian market regulator has approved the offer forms. A group of underwriting banks, led by Bank of America Corp. and Mediobanca SpA, have guaranteed the rights offer, the lender said.

UniCredit will pay as much as 250 million euros in fees and expenses related to the offering, about 3 percent of the total raised, the lender said in a prospectus on its website.

Shareholders can buy stock from Jan. 9 to Jan. 27, and the rights will be tradable from Jan. 9 to Jan. 20, the bank said.

EBA Requirements

The share sale and the inclusion of 2.4 billion euros of convertible and subordinated hybrid equity-linked securities, known as CASHES, in its core Tier 1 calculations will allow UniCredit to exceed the capital targets set by the EBA, the bank said on Dec. 8. The lender’s core Tier 1 capital will rise to 9.4 percent after the measures are implemented, higher than the 9 percent goal set by the EBA for June.

“This capital increase is done in the middle of an unsolved sovereign crisis,” analysts at Fidentiis Equities wrote in a note to clients. “This is why it might have difficulties in going through.”

European stocks retreated today from a five-month high as UniCredit’s rights offer boosted concern that banks may struggle to raise more capital to weather the region’s debt crisis.

The EBA estimated last month that banks in the region needed to raise 114.7 billion euros of capital, 8 billion euros more than previously estimated. It gave them until Jan. 20 to submit money-raising plans to national supervisors. Banks that fail to raise enough capital in the market will first tap national governments, falling back on the European Financial Stability Facility rescue fund only as a last resort.

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net; Elisa Martinuzzi in Milan at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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