Financial News

  • 5 January 2012, 19:11

Shares In Italy's Biggest Bank Suspended

Shares in Italy's biggest bank were suspended after a bid to raise money from investors flopped in its early stages.

UniCredit offered new shares at a steep 69% discount to Tuesday's closing price for existing stock as part of its plan to raise 7.5bn euros (6.3bn) in new capital by the end of January.

But the heavy discount immediately failed to attract private investors, with just a 24% take up though the rights issue is under-written by 24 other financial institutions.

The bank's share price plummeted by 9.9% initially, devaluing it to such an extent that trading in the stock on Milan's FTSE exchange was suspended.

The fall signalled a lack of confidence in the Italian bank and its attempts to shore up its financial strength.

The European Banking Authority had told banks they must find 115 billion euros of extra capital by the end of June to reach a minimum core capital level of 9% - with lendersin Italy, Spain and Germany needing the most.

Financial commentators had varied views on the impact of the share suspension on UniCredit.

Peter Thal Larsen, assistant editor of Reuters Breakingviews, told Sky News that the Italian bank would successfully be able to raise its 7.5bn euros.

"That is guaranteed, regardless of what happens in the eurozone," he said.

He added that at this stage the private market was still willing to capitialise UniCredit.

But banking industry expert Ralph Silva said it was clear Unicredit's rights issue had been a "complete and utter failure".

He predicted the lack of early take-up would have a profound effect on the wider financial services industry, as many other European lenders were planning to launch similar plans to raise cash.

Mr Silva said: "For large banks the option of going to private investors appears to be not an option.

"Going to governments and selling assets are the only ways forward."

But despite the developments he said the retail bank was too important to Italian consumers to be allowed to go to the wall.

"UniCredit could fail but it can't fail," Mr Silva warned.

Meanwhile, banks' deposits with the European Central Bank (ECB) have hit an all-time high.

Some 453.18bn euros (378bn) was deposited at the ECB on Tuesday, breaking a previous record set last week of 452.03bn euros (377bn).

The data suggests banks remain reluctant to lend to each other amid ongoing market tension.

Analysts said lenders were instead opting to hoard their excess funds at the ECB after borrowing under its new lending terms.

The ECB agreed last month to loan a record 489.2bn euros (408bn) to 532 banks in a three-year refinancing operation in a bid to avert a possible credit crunch.