UniCredit Share Plunge Seen Deterring Banks in Europe From Selling Stock
UniCredit Plunge Seen Deterring EU Banks From Selling Shares
Alessia Pierdomenico/Bloomberg
Shares of Milan-based UniCredit have fallen since the lender set the terms of its 7.5 billion-euro ($9.6 billion) stock sale on Jan. 4.
Shares of Milan-based UniCredit have fallen since the lender set the terms of its 7.5 billion-euro ($9.6 billion) stock sale on Jan. 4. Photographer: Alessia Pierdomenico/Bloomberg
A 45 percent drop in UniCredit SpA (UCG) shares over four days after Italy’s biggest bank announced a rights offer may deter European lenders from asking investors for help to meet requirements that they replenish capital.
“Every bank will be trying to avoid doing a rights issue even more now,” said Peter Braendle, a fund manager at Swisscanto Asset Management in Zurich. “The decline is really amazing. It doesn’t send a good signal.”
Shares of Milan-based UniCredit closed at a 23-year low of 2.286 euros yesterday after posting an unprecedented decline since the lender set the terms of its 7.5 billion-euro ($9.6 billion) stock sale on Jan. 4. Today, the shares rose as much as 7.8 percent and were 5.2 percent higher at 2.40 euros at 11:27 a.m. in Milan.
The bank is seeking buyers for new shares at a discounted price of 1.943 euros apiece. The offering, which runs through Jan. 27, was guaranteed by a group of 26 underwriters, led by Bank of America Corp. and Mediobanca SpA (MB), which have agreed to buy any leftover stock.
UniCredit decided to sell new shares after the European Banking Authority gave the region’s lenders until June 30 to raise 115 billion euros to increase core Tier 1 capital to 9 percent as a buffer against the sovereign-debt crisis. The EBA set a Jan. 20 deadline for banks to submit money-raising plans to supervisors. Those that fail to raise enough capital on their own will have to turn to their governments, or, as a last resort, the European Financial Stability Facility.
‘Huge Challenge’
The rights to buy new stock rallied 52 percent today after sliding 65 percent yesterday, their first day of trading.
Banks are selling profitable businesses and curbing lending to improve capital ratios and avoid government bailouts, even after the European Central Bank provided unprecedented three- year loans to avert a credit crunch. Italian banks borrowed 210 billion euros from the central bank in December from 153.2 billion euros in November, Bank of Italy data shows.
Italian banks are struggling to attract foreign capital as debt contagion threatens to engulf the nation and drive the economy deeper into contraction. The lenders’ biggest investors, Italy’s banking foundations, are strapped for cash.
“The sharp fall in UniCredit’s stock underscores the huge challenge for Italian and euro-zone banks to raise fresh money from shareholders,” said Nicholas Spiro, managing director of Spiro Sovereign Strategy in London. “As long as Italy’s problems loom large in the minds of investors, it will be extremely difficult for other Italian lenders to raise equity.”
Santander, Commerzbank
UniCredit was told last month by the EBA to raise 8 billion euros in additional capital, the lender said. Banca Monte dei Paschi di Siena SpA, Italy’s third-largest bank, said it has a capital shortfall of 3.3 billion euros. The shares have dropped 24 percent since Jan. 4, valuing the bank at 2.27 billion euros. Unione di Banche Italiane ScpA said it needs 1.4 billion euros, and Banco Popolare SC (BP) requires 2.7 billion euros to comply with the EBA’s target.
The credit rating of Italy, along with that of France, Germany and a dozen other euro-zone countries, was put under review for a possible downgrade by Standard & Poor’s on Dec. 5.
Spain’s Banco Santander SA (SAN), which had a capital shortfall of 15.4 billion euros, the largest under the latest round of EBA stress tests, avoided tapping shareholders in part by exiting profitable operations outside its home market. Santander said yesterday it had plugged the capital gap by selling assets and swapping preferred shares for stock.
Commerzbank Outlook
Commerzbank AG (CBK), Germany’s second-largest bank, needs 5.3 billion euros in capital, the most among the six German lenders deemed to have a deficit. The Frankfurt-based firm is fighting to avoid a second taxpayer-funded rescue by lowering costs, disposing of assets and retaining earnings. “Capital raising” is listed as an option, according to slides published late yesterday for a presentation that Eric Strutz, the bank’s chief financial officer, was scheduled to hold in New York.
Monte Paschi said in December that the EBA’s target is “not appropriate” for retail banks. The Siena, Italy-based lender is considering measures including the conversion of hybrid bonds to core capital and changes in its accounting methods to meet the threshold. The firm is weighing the sale of assets and securitization transactions for as much as 1.8 billion euros, La Stampa newspaper reported Jan. 3.
For some banks, selling stock is complicated by a lack of funds among their biggest shareholders.
88 Foundations
“Monte Paschi cannot ask for money from existing investors, because they haven’t got any,” said Fabrizio Spagna, chairman of Axia Financial Research. “In such a situation, it would be hard to find banks available to underwrite the offer. If the situation of Italian banks should worsen, I expect and hope that Italy intervenes to save the banks.”
Fondazione Monte dei Paschi di Siena, which owns 48.4 percent of the bank, had to renegotiate an agreement with creditors last month after the Monte Paschi shares it used as collateral for the loan plunged in value.
Italy’s 88 regional foundations, which oversee 49 billion euros of assets, half of which is invested in banks, have backed banks’ capital-raising efforts over the past four years.
Italian lenders had called for more time to meet the mid- 2012 deadline for raising the money. The EBA capital measures are inappropriate in their “method, merit and timing,” Giovanni Sabatini, director general of Italy’s banking association, said Dec. 6.
Book Value
Banks should look to the private, rather than the public, sector to bolster reserves by cutting bonuses, retaining earnings or issuing shares, the EBA said in a Dec. 9 statement. Regulators won’t allow firms to cut lending to companies to meet the 9 percent capital requirement, the agency said.
“Only the narrowest of actions” to run down loans and other assets will be allowed, the EBA said.
Capital requirements for banks are set as ratios of their reserves compared with assets weighted according to their riskiness. Regulators can make an exception if a bank is transferring part of its loan book to another company, so that overall lending to the real economy isn’t reduced, the EBA said.
UniCredit, which holds about 39 billion euros of Italian sovereign debt, will need to convince investors that its current valuation of 0.18 times tangible book value doesn’t reflect the bank’s potential. The stock slide since Jan. 3 was caused by “technical factors” and other issues not directly related to the bank itself, UniCredit Chief Executive Officer Federico Ghizzoni told employees yesterday.
UBS AG analysts today upgraded their rating on UniCredit to “buy,” citing the stock’s slide and the bank’s measures to reduce the profitability gap with other lenders, according to a note sent to clients today. UBS is among the group of banks that have guaranteed the offer.
“With every quarter that the economy worsens, it reflects on banks’ balance sheets,” said Joao Soares of Bain & Co., who has advised Italian, Irish and Portuguese banks. “We’re in a spiral. As things stand right now the situation is more likely to deteriorate than improve. It would be very beneficial to banks to get more time to raise capital.”
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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