Banking Crisis

Unicredit Approves Capital-Raising Plan As Market Turmoil Bites

Tom Burroughes Editor London 6 October 2008

Unicredit Approves Capital-Raising Plan As Market Turmoil Bites

UniCredit, the largest Italian bank by market capitalisation, has approved a plan to raise capital, director Piero Gnudi said, according to media reports.

The bank's directors have "confidence" in UniCredit, Mr Gnudi told reporters in Milan after leaving an extraordinary board meeting. Mr Gnudi did not give additional details.

Merrill Lynch and Italy's Mediobanca are working on a €2.0 billion to €2.5 billion capital hike for UniCredit to strengthen the bank, a financial source with direct knowledge of the matter said, according to Reuters.

UniCredit shares were hammered last week, losing nearly 25 per cent in value in two trading sessions before recovering part of the losses, on concerns over exposure to the global credit crunch, possible new share issues and a cut in its dividend.

Under the capital hike plan, new shares which remained unsubscribed would be guaranteed by a mandatory convertible bond - which cannot be reimbursed with cash - the source said just before UniCredit's board began an extraordinary meeting.

Another source familiar with the situation said a group of core UniCredit shareholders would have preemptive rights for the bond and have already backed the operation.

Neither Merrill Lynch nor Mediobanca were immediately available to comment. The board yesterday would approve extraordinary measures to strengthen UniCredit's capital structure, board member Piero Gnudi said as he entered the bank's headquarters in Milan.

Italian newspapers said the "anti-crisis" package may be worth €5-6 billion, comprising new share issues to cover a €3.0-3.5 billion dividend for 2008 and to back a €2.0-2.5 billion convertible bond.

UniCredit, which has previously denied the need to issue new shares, declined to comment on the reports.

The bank changed its plans when chief executive Alessandro Profumo saw the shares hit by speculative trade on Thursday, leading Italian newspaper Corriere della Sera reported yesterday without naming its sources.

UniCredit has been hardest hit among Italian banks by the credit crisis because it gets more than half its revenue from outside the conservative domestic lending market.

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