Photo: AP/Jason DeCrow
It was a risk, but it’s paying off.Bank of America was the underwriter of Italian bank UniCredit’s rights offering (ending today), and these days, putting the words ‘Italian’ and ‘bank’ in the same sentence sounds risky enough without adding the word ‘underwriter’ to it.
For Bank of America to make money from the rights offering, shareholders had to buy UniCredit stock at a discounted price in this special sale. For that to happen, UniCredit’s regular stock price had to look attractive.
Luckily for Bank of America, that’s what it did all through the month of January, when the stock rose 64%, according to the NYT. This victory means Bank of America isn’t out $960.15 million.
At first the sale looked dicey. On day one (January 9th), the offerings price fell 47 cents, but according to insiders, hedge funders in America and Europe started to buy throughout the month.
“There was selling pressure from a lot of very stretched foundations that needed to raise funds,” said an investment banker at another firm in Europe, who also spoke on condition of anonymity because he was not authorised to talk publicly. “But after the forced sellers left the market, there was some opportunistic buying by other investors who believe UniCredit will pull through the crisis.”
Hats off to all the Euro bank believers, not just UniCredit’s, because European banks have been rallying all around:
Shares in Deutsche Bank of Germany, for example, have risen almost 27 per cent since Jan. 9, while the stock value in BNP Paribas of France has increased by 28 per cent over the same period. The Continent’s financial sector had come under increased pressure last year, as regulators pushed them to raise a combined 115 billion euros by June to meet new capital requirements.