Italy's largest lender, UniCredit, is set to announce the country's biggest bank share issue, worth up to 13 billion euros ($13.8 billion). As Ciara Lee reports, it could be a major test of confidence for a banking sector already under pressure over the failing Banca Monte dei Paschi di Siena.
It would be the biggest share issue a bank has ever held in Italy. Sources say the country's largest lender Unicredit is preparing to announce next week a sale worth up to 13 billion euros. The bank operates in 17 countries and its health is seen as important to the stability of the global financial system. The cash call - expected early next year - would be a major test of confidence for Italy's wider banking system, at a tricky time. Prime Minister Matteo Renzi quit this week after a heavy referendum defeat. (SOUNDBITE) (English) PANMURE GORDON, CHIEF ECONOMIST, SIMON FRENCH, SAYING: "Equity investors will take a look at that uncertainty over Matteo Renzi's future and the rise of the Five Star Movement. And be cautious and want a premium on that equity. So it's simply a valuation question for investors. Have they got the appetite when it is a very uncertain time in Italy?" With a market value of 15 billion euros, UniCredit has lost more than half its value this year. It's weighed down by concerns over bad loans and a weaker balance sheet compared with European rivals. (SOUNDBITE) (English) PANMURE GORDON, CHIEF ECONOMIST, SIMON FRENCH, SAYING: "If they are unable to raise equity then the question now falls to what degree will euro zone finance ministers tolerate a capital injection. Will they see this a systemic crisis or a potential for a systemic crisis and therefore bend the state aid rules, which they did during the financial crisis?" The euro zone bailout fund says it is not preparing financial support for Italy despite some individual banks having problems, most prominently Italy's third-largest lender Monte dei Paschi. The world's oldest bank is at risk of being nationalised as investors remain reluctant to fund the bank's own 5 billion euro rescue plan.