UniCredit shares are getting crushed today on the back of their rights offering. Mediobanca shares are also down. Mediobanca is the largest shareholder of Unicredit (as we sent out last week). Mediobanca has underwritten 10% of the rights offering. When will Mediobanca need to do its own rights offering? Will their biggest shareholder (UniCredit) underwrite some of Mediobanca’s rights offering?
So maybe it is not yet a death spiral, but this level of interconnectedness is scary. Mediobanca (MB.IM) is losing money on its existing holdings of UCG.IM. As of the last filing, MB had 130 million shares of UCG. At the end of the 3rd quarter, the shares were at 5.29, by year end they had slipped to 4.23, and they are currently at 2.29. That is almost a 400 million loss of MB (if they held them all). It may also lose money on its underwriting commitment, and will have to come up with cash to exercise their own rights if they don’t want to be diluted.
Unicredit is losing money on its existing holdings of Mediobanca, and that is without Mediobanca announcing a rights issue. How far off can that be?
But fortunately, they can still issue debt to themselves, get a government guarantee, and use that to borrow from the ECB, so all is good.
From the old programming days, errors in recursive programs were always the hardest to fix, and I think that is true in Italy as well.