Italian bank issues warnings to investors over euro currency

Sunday, January 8, 2012
By Paul Martin
January 8, 2012

ROME -The Italian bank UniCredit warned its investors of the potential risk of a break-up of the euro as the single currency was battered on anxiety about the health of euro zone governments and their banks. Trading in the bank’s shares was halted five times on Thursday due to huge falls as shareholders digested the terms on which it was trying to raise €7.5 billion ($9.5 billion) to plug a hole in its regulatory capital. Italy’s market regulator, Consob, said it was looking at whether short-selling rules had been broken because of the 30 per cent fall in the shares in the 48 hours since the terms of the rights issue were announced. Short selling allows punters to make profits on falling share prices and has been prohibited in parts of Europe. Anxiety about the banking sector and fears about the ability of euro zone governments to repay their debts drove the euro to its lowest level against the US dollar since September 2010, an 11-year low against the yen and a near 16-month low against sterling. The prospectus issued by Unicredit – whose shares are at their lowest since its creation in 1998 – to entice its investors to support the €7.5 billion cash call, spelt out the possibility of a collapse of the euro zone. In a series of risk warnings that always accompany such share offerings, the bank said “concerns that the euro zone sovereign debt crisis could worsen may lead to the reintroduction of national currencies in one or more euro zone countries or, in particularly dire circumstances, the abandonment of the euro.” Sources believed this was the first time the warning, inserted by the army of lawyers working for the 27 banks underwriting the cash call, had been carried in such a document, but would not be the last. However, the bank insisted that it was not predicting a collapse of the euro zone. The warning went on to say that “any deterioration of the political and socioeconomic situation in Greece, as well as a decision by the group to participate in restructuring plans for Greek debt, could result in even bigger losses for the group than those recorded on September 30, 2011.” -SMH

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