UniCredit on the Ropes
Research for Online Investors

01/04/12

Italy’s UniCredit bank tried to sell shares this morning to raise money.  The bank offered $9.75 billion dollars worth of stock for sale at a 69% discount to Tuesday’s closing price.  The only buyers were other sponsoring banks, purchasing 24% of the offering.  UniCredit’s stock plummeted 9.9% on the stock market and trading was suspended.

New capital requirements from the European Banking Authority require banks to increase their capital level to 9%.  The eurozone debt crisis is poised to claim a victim, once proud UniCredit traces its history back to 1473.  In 1998, UniCredit merged with nine of Italy’s largest banks and expanded into Eastern Europe (old Soviet bloc countries).  They then merged with Bavarian and Austrian banks.  In 2007, UniCredit merged with the two largest banks in Kazakhstan to extend their reach into Central Asia.

UniCredit’s experience is likely to be repeated with other eurozone banks.  They must raise money, but nobody wants their stock because they know what is on their balance sheets. Dodgy debt from shaky governments.

Last night, bank deposits with the European Central Bank (ECB) hit an all time high at $590 billion dollars.  The previous record was set last week.  The ECB pumped $637 billion dollars into the banking system just before Christmas, most of it looks to have come home!

European politicians hoped banks would use the three-year low interest loans from the ECB to buy sovereign debt.  According to the Financial Times, Italy has to sell $520 billion dollars in debt over the next twelve months.  How much will UniCredit buy?  Not much now.  To increase their reserves they must sell assets if they cannot sell stock.

Europe launched their Emissions Trading Scheme (ETS) on Jan. 1.  Airlines flying into and out of EU airports are required to report how many tonnes of carbon they emit on their flights over their carbon allowances.

U.S. Airlines challenged the laws application to them, but lost in a December ruling.  The EU law allows fines of $130 per tonne of carbon dioxide emitted.  The European Commission estimates the ETS will add $2.60 to $15.60 to airline tickets for flights into European Union airports.

The Guardian reports that China’s deputy secretary-general of China Air Transport Association, Cai Haibo, said “China will not cooperate with the European Union on the ETS, so Chinese airlines will not impose surcharges on customers relating to the emissions tax.”

President Obama announced his “recess appointment” of Richard Cordray to head the Consumer Financial Protection Bureau (CFPB) today in Shaker Heights, Ohio.  The CFPB was created in the Dodd-Frank Financial Regulation law that passed last year.  It could not begin operating until an executive was appointed to lead the Bureau.

Republicans in the Senate have held up the nomination because the CFPB is not accountable to congress as the Dodd-Frank law is written.  They have pressed the White House and Democrats to change the law to require accountability before allowing a vote on Cordray.

Neither the House or the Senate are in recess, as the constitution requires each body to approve recess of the other body of more than three days through a resolution.  Since a joint resolution has not been approved, both bodies have a representative open and close a session every three days to comply with the constitution.

The president has picked a fight on constitutional grounds for political reasons.  He wants to portray his administration as doing something to help the middle class, when congress won’t do anything.

We may see a legal challenge to the appointment by the Chamber of Commerce or a business that receives one of the first regulatory letters from the CFPB.  You can read more about Cordray’s appointment in USA Today.

The market is consolidating yesterday’s gains today.  Support was at 1267 on the S&P and it appears to have held.  1267 was the previous high set on Dec. 5th, 6th and 7th.  Barring bad news out of Europe or Iran, we look like we are headed higher.  Earnings start next Monday after the market closes with Alcoa (AA) reporting their 4th quarter and annual earnings.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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