Trading in UniCredit SpA, Italy's largest bank, was suspended for the second straight day Thursday after shares tumbled further after a heavily-discounted share offering. Italy's stock market watchdog said it was checking for possible violations on short-selling.
UniCredit shares dropped some 10 percent Thursday before trading was halted with the bank's share price standing at euro4.86 ($6.29). On Wednesday, its share price slid 15 percent after the bank priced the new shares it's offering to shareholders at a big discount.
UniCredit is trying to raise euro7.5 billion ($9.7 billion) to meet new European requirements for banks to boost their financial cushions against possible losses. The new shares being offered as part of the rights issue have been priced at a 69 percent discount to Tuesday's closing price.
Meanwhile, Italy's market watchdog authority, Consob, said it had started checking into the movement of UniCredit shares on Wednesday and Thursday with an eye to possible violations of Italy's new rules on short-selling.
UniCredit CEO Federico Ghizzoni told Il Sole 24 Ore newspaper he was confident the market would underwrite nearly all of the rights issue and that such a "technical reaction" was expected. He said he was "optimistic" that the capital increase would be successful.
Banks are an integral part of Europe's debt crisis because they hold government bonds. A default or steep fall in the value of government bonds could inflict heavy losses on banks and choke off credit to the European economy. That's why the regulatory authorities want Europe's banks to raise their buffers by euro115 billion (149 billion) over the next few months.
But that need for more capital also worries markets about the health of individual banks. France's Societe Generale SA, for example, was down 4 percent.