They say that if at first you don’t succeed, you should try, try and try again. This is particularly appropriate in the case of Unicredit who today announced their fourth capital raising program since the onset of the financial crisis.
This capital raising, of €13bn is the biggest one of the four not only because it not only nearly represents the entire market cap of the bank as it is, but it also dwarfs the one in 2012, which was €7.5bn and the two in 2008 and 2009 which were €3bn and €4bn respectively.
The question investors should be asking given that the shares are higher as a result of the announcement this morning, is what is different this time, aside from the fact that the shares are down 96% from the 2007 peaks, and 55% down in the last 12 months?
Having been bitten three times previously, and given that there still remains a great deal of uncertainty about how the wider problems in the banking sector in Italy will be dealt with, taking part in yet another one of these deals is not without risk.
That being said at least the management of Unicredit is trying to get on top of the problem, albeit rather belatedly by selling assets, cutting another 6,500 jobs, bringing the total number to 14,000 by the end of 2019, about 13% of the workforce. It is also looking to hive off up to €17.7bn of non-performing loans as well as cutting the dividend, though why it was even still considering paying one is a mystery.
The biggest future problem facing the bank isn’t so much the restructuring program but the future growth prospects of the Italian economy, which are pretty poor. Getting investors to dilute themselves further is one thing, but to do so in order to set aside future bad loan provisions is another, particularly when the long term Italian economic outlook remains so uncertain.
Shareholders will get to vote on the deal sometime in the early part of next year when it should become much clearer how Italian officials intend to deal with the problem of Monte dei Paschi’s solvency and the whole dysfunctional Italian banking system.
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