UniCredit’s fate stalks world’s zombie banks

THERE IS a simple explanation for why the world’s zombie banks remain so reluctant to write off worthless assets and tap the equity markets for fresh capital. They don’t want to end up like UniCredit.

This month has been a nightmare for the Italian bank’s shareholders. Since embarking last week on a €7.5bn stock sale at a steep discount to its January 3 closing price, UniCredit shares have fallen 39% to €2.56. A little bit of candour about the true state of a company’s finances can hurt a lot.

That undoubtedly is the message some other lenders facing large capital shortfalls will take from UniCredit’s troubles. The incentive now, just as most banks are undergoing their year-end audits, will be to stick with the pretense that all is well and that there is no need to raise additional capital.