Unicredit bank is NOT Joseph A. Bank (JOS). You don't want to get a two-for-one sale from a financial. You want one from a clothing store. Yet, that's exactly what you got with this rights offering that drove Unicredit's stock down to the March 2009 level, the worst month I can ever recall for banks around the world.
The fact is that there were buyers at this 43% rights offering discount. So, I guess we can say it was a success. But it also says that the prices people are paying for bank stocks in Europe with lots of leverage and lots of sovereign debt is about 43% too high, even after the declines this group has seen.
Yesterday was a real happy day and we didn't want to think about what drove us down last year and caused the nightmarish declines overnight: funding for sovereign debtors and for European banks. I talked to a number of people who said, "that's it, I am not going to focus on Europe any more."
But I think that when you wake up and key European stock markets are down a percent and our futures are down and the only linkage that you can find is Europe, you are going to regret your decision to ignore Europe. The reason we are in this fix has more to do with financial market linkage than it does with actual linkage, but we are trading stocks. So, the two-for-one sale that Unicredit, a bank you do not use or probably do not know, is squarely in your wheelhouse. You simply can't avert your eyes unless you want to avert your eyes to our screens, too.
The difference, as I see it, between before the big accord in Europe and after is that they have agreed to have a serious recession in Europe and ride it out rather than cram down all of their banks and errant country debt and solve the problem once and for all. This add-debt to solve-debt solution isn't tenable long-term, but it has worked well short-term.
Now, some good news. There was actually an Italian bank deal. It was able to raise some capital. Not nearly enough, not at prices that made any sense, not in the ways that our banks were forced to do it with TARP. But they did use the respite in selling to bring to market some equity and equity, not debt, is what is really needed.
In that sense it is bullish. NOT for banks. They are a nightmare. But for all other equities that need a banking system to be somewhat functional in Euroland.
Random musings: Those of you who think I am flip-flopping on oil please read last night's piece. I am talking about the price of commodities -- oil and gas -- their divergence and who benefits the most from the strength and weakness in the commodity prices. This cold weather in the Northeast will be a brutal test of the ability to draw down nat gas in all of its forms that are used for heating, including the brutal propane market.