TRADING in shares and rights in Italy’s largest lender, UniCredit, had to be suspended for the second time in a week yesterday after falling too quickly.
The 12.8 per cent fall yesterday means that the bank has lost nearly half of its value in just one week since giving details of its heavily discounted rights issue.
It was an inauspicious start to trading in the discounted rights to take up extra shares in the bank, which fell 14.2 per cent upon opening.
Bankers on the deal blamed the plunging stock price on “tail-swallowing” – a practice whereby investors sell shares in order to buy cheaper rights. The problem was being exacerbated by a market with little liquidity, said one banker.
But a source on the deal also said there is strong interest in the stock because it is now “screamingly cheap”. The bank has received indications of interest in about 24 per cent of the new issue so far, although 10 per cent of the interst does not consist of firm commitments to participate.
There had been suggestions that sovereign wealth funds could be tapped to take up some of the issue, but two banking sources said that risk appetite among Middle Eastern funds has retreated markedly due to nursing recent losses.
Even pessimistic investors were shocked by the extent of the discount when UniCredit unveiled its rights price last week.
It was forced to knock them down to just €1.90, a 43 per cent discount on the shares’ estimated post-deal value and a 69 per cent discount to its closing price a week ago, before the announcement.
Underwriters are on the hook for the whole issue if they cannot find buyers, but even rival bankers think that the deal will get done somehow.
One said that despite the lender’s plunging stock price, its underlying business is “healthy” and UniCredit’s banks are unlikely to be left with much on their books.