Barclays, UBS Charge Record Fees to Escape Unipol Stock Losses
Barclays Plc (BARC) and UBS AG (UBSN) are charging two Italian insurers twice the average fee to manage 1.2 billion euros ($1.5 billion) of stock sales as they seek to insulate themselves from potential losses on the offerings.
The two banks are part of a group of underwriters led by UniCredit SpA (UCG) and Mediobanca SpA (MB) that are charging fees of at least 4.5 percent on rights offers by Fondiaria-SAI SpA (FSA) and Unipol Gruppo Finanziario SpA, company filings show. That’s more than twice the 2.25 percent median fee for European rights offers since 2010, data compiled by New York-based research firm Freeman & Co. show.
Fondiaria is merging with Unipol to bolster capital after regulators found the Turin-based insurer failed solvency requirements. The banks, which agreed to guarantee the stock as part of the rescue plan, have found buyers for less than half of what they underwrote, leaving them at risk of losses that won’t be covered by the 55 million euros in fees they will earn. The offerings may worsen the decline in the banks’ profit from equity underwriting after dealmaking dried up this year, as well as impair their ability to participate in future deals.
“Fees are so high because they reflect poor financial conditions of the two insurers, risks linked to higher country- risk and the chance of failure of the planned merger,” said Angelo Drusiani, who manages about 3 billion euros at Banca Albertini Syz & C. in Milan. “It’s going to be very hard to sell the remaining shares. I see little chance of success.”
Unipol (UNI) shares, which sank to a record 1.84 euros on Aug. 6, closed at 1.995 euros on Aug. 10, less than the 2 euros rights offer price. Fondiaria, which also fell to a record 94 cents on Aug. 6, closed at 97.75 euro cents, compared with its 1-euro rights offer price.
Fondiaria and Unipol will offer investors later this month the chance to buy stock shareholders didn’t buy, before the underwriters are required to purchase the remainder.
Officials at Mediobanca, Credit Suisse, UniCredit and UBS declined to comment. Spokesmen for Barclays, Deutsche Bank and Nomura weren’t immediately available to comment.
Unipol agreed in January to rescue Fondiaria through a merger plan backed by Mediobanca, one of the company’s biggest creditors, and UniCredit. The plan includes a four-way merger of Unipol’s insurance unit, Premafin Finanziaria SpA (PF), Fondiaria and its unit Milano Assicurazioni SpA. (MI) Unipol is tapping investors for money to help finance the deal.
Mediobanca, which has loaned more than 1 billion euros to Fondiaria, arranged the group of banks underwriting the two offers. In February, the insurers hired eight banks to underwrite the sales, a group that shrank to seven after Morgan Stanley (MS) dropped out. Officials for Morgan Stanley declined to comment.
At 4.5 percent, the fee is the highest of all rights offerings that have raised $1 billion or more since at least 2010, Freeman data show. The 55 million euros the banks will earn as a basic fee may rise to as much as 103 million euros, or about 8.7 percent of the total amount they’ve guaranteed, under a so-called incentive fee, the filings show.
A spokesman for Unipol declined to comment, while officials for Fondiaria didn’t return calls.
Banks charge higher fees for rights offers when stock swings are greater because there’s a higher probability of being left with unsold stock. Fondiaria shares posted daily falls of 5 percent or more 37 times this year, data compiled by Bloomberg show. The benchmark FTSE MIB Index (FTSEMIB) fell more than 4.5 percent in one day on only two occasions this year.
“Banks are being more aggressive because the volume of deals dropped a lot in IPOs and other areas,” said Josef Schuster, who helps oversee about $2.5 billion at Chicago-based Ipox Schuster LLC. “They want to get their hands on all possible opportunities out there -- without losing money.”
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