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What's going on?
Theres more news about Italian banks but this time its good: Italys biggest bank, Unicredit, announced that it wants to raise 13 billion as part of a turnaround plan. Investors like the plan so much that they sent the stock 15% higher on Tuesday!
What does this mean?
Unicredit is a big bank with a big problem: its beset by loans it made that are unlikely to get paid back in full. The mega-fundraise announced on Tuesday is designed to fill the hole in the banks finances created by these bad loans (i.e. with investors cash). Unicredit also said it would do other things to right its finances, including cutting lots of jobs and closing branches in an effort to decrease costs all part of a bigger plan to make Unicredit a healthier and more profitable bank.
Why should I care?
For the stock: This isnt a done deal but its looking good.
Tuesdays news is simply that Unicredit has asked investors for 13 billion not that theyll definitely get it. However, the reaction of the share price suggests that investors believe theyll be able to pull off the deal. Unicredits new CEO is one reason for the optimism: he has already shown that hes willing to cut costs aggressively and sell business lines that arent integral to the bank (e.g. its investment business).
The bigger picture: A turnaround of Italys biggest bank should calm some fears but not eliminate them.
Its a pretty big deal that Unicredit has put forward a turnaround plan that seems like it actually may stabilize the bank. A healthier Unicredit will be able to make new loans to enterprising Italians, who will then invest in Italian companies and create jobs, thereby boosting Italys economy. However, other Italian banks remain under serious pressure, including Monte dei Paschi. Tuesday was a good day, but the Italian banking system is not out of the woods yet.
Originally posted as part of the Finimize daily email.
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