Don't Ignore Italy's Bank Woes

 | Jan 05, 2012 | 7:38 AM EST
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As we come in today and we see the same old, same old, we realize that days like yesterday give us a totally false sense of confidence. The most significant event that occurred yesterday wasn't the advance in the high-multiple stocks or the fact that the Nasdaq shrugged off a terrible Acme Packet (APKT) number. It wasn't that the banks went up despite the euro going down. It was that one of the largest banks in the world -- Italy's biggest, UniCredit -- had to give a 43% discount to shareholders who participated in a $10 billion rights offering.

That's the kind of deal that says, "Look, I would rather just keep selling assets and hope than take the medicine," and believe me, UniCredit is no better or worse than dozens of European banks. The stock took the largest hit in 23 years. It just got clocked. And lots of holders didn't want more of it.

This was what I would call a price discovery event. We now realize that the real price of these stocks, all of them, is much lower. It made me feel like you could short every one of them, even down here, and make money. This was a totally debilitating move, something that said the European banks are just dead men walking, and we didn't care.

Oh, that's great.

Believe me. We should care. At our worst moment, our banks could still raise money more easily.

So, we get the delinking story that's going around.

I reiterate: You ignore Italy at your own peril. Think of it like this. What would happen if Bank of America (BAC) needed to do a rights offering and it came at $3? Wouldn't you be wondering about the soundness of the system? That they would have to stoop to that level to take money? Could you simply say, "Oh, they are an awful bank but every other bank is fine"?

I am staying on Defcon 2 because of rights deals like UniCredit. I am taking no solace that our banks didn't go down. That's just too glib. If I am wrong, I will make it up in other ways.

I'm sorry, nothing else mattered yesterday like UniCredit, and if you think that the action yesterday was the new normal, you'd better hope that no other bank needs to raise money ... even though you should know that almost every single one of them does.

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