UniCredit SpA launched a 7.5 billion euro ($9.8 billion) rights issue at a massive discount on Wednesday, highlighting the struggle faced by European lenders under pressure to raise capital to counter a spreading debt crisis. The issue, the biggest by a European bank for more than a year, is aimed at repairing its ravaged balance sheet and meeting stringent capital rules to help restore investor confidence.
The share offer, seen as a litmus test of market appetite for banking stocks in the new year, was priced at a 69 percent discount to Tuesday's closing price - a much higher discount than that used by UniCredit's peers in recent rights issues. Such terms may discourage other lenders from tapping the market to raise money and prompt them instead to shrink the loan book, sell assets or cut jobs and dividends.
"UniCredit's rights issue provides a weak read-across to the rest of the sector and will put additional pressure on those other banks needing to boost capital levels," said analysts at investment bank Macquarie in a report. The European Banking Authority has 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 percent - with lenders in Italy, Spain and Germany needing the most.
At 8.0 billion euros, UniCredit's shortfall is the biggest of any bank after Spain's Santander, which needs 15 billion euros to meet the EBA requirements - a crucial plank of efforts by eurozone leaders to avert financial disaster. In another sign of the challenges faced by the bank, UniCredit said commitments from existing shareholders so far would cover up to 24 percent of the new share offer - a lower take-up than had been anticipated. The consortium of 15 banks underwriting the issue, led by Mediobanca and BofA-Merrill Lynch, was extended to spread the risk of part of the offer not being taken up by the market, and is now made up of 27 lenders.
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