Italian bank UniCredit has launched a €7.5 billion rights issue at a massive discount, 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 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% 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 their loan books, sell assets or cut jobs and dividends.
The European Banking Authority has told banks they must find €115 billion 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 billion, UniCredit's shortfall is the biggest of any bank after Spain's Santander.
UniCredit shares, which have lost more than half their value over the past year as the crisis spread to Italy, closed down more than 14.5% in Milan.
In another sign of the challenges faced by the bank, UniCredit said commitments from existing shareholders so far would cover up to 24% 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.
The rights issue, which will start on January 9 and close on January 27, represents 60% of the bank's current market value of €12.5 billion.
