Photo: Lisa Du, Business Insider
UniCredit has been tanking for the past three days. You may be saying to yourself: “I’ve heard this story before. Poor Italy. Got it.”Well unfortunately it’s not that simple. On Monday, UniCredit will try to raise cash by beginning a $9.7 billion rights issue — which means that investors will have the opportunity to buy stock at a discount, the Wall Street Journal Reports.
If that sale doesn’t go well (it ends on January 27th) the underwriters will have to eat that $9.7 billion. And the lead underwriters will have to eat $960.15 million of that.
It is on that point that this sale hits close to home, because one of those underwriters is none other than Bank of America.
UniCredit will get its money, and the underwriters will get more shares of an Italian bank. UniCredit is profitable, but it holds a lot of Italian bonds, and obviously if BofA is saddled with a ton of UniCredit shares, its exposure to Italian banking sector will increase.
So it all depends on shareholders feeling about the Italian/European banking sector in general (yikes). According to the WSJ, Italian authorities are already launching an investigation into whether or not short-sellers are attacking UniCredit right now, (which would be a violation of a current ban on short-selling).
BofA is taking a big risk here. If they lose, they’re going to have shell out at a time when they should be concerned about raising capital. Credit Suisse and Deutsche Bank stand to lose too (but not as much as BofA). Goldman Sachs and Morgan Stanley, on the other hand, decided to sit this one out.