By David Berman
If the first step to solving a problem is admitting that you have one, then investors should accept with delight some of the risk factors in the UniCredit SpA rights prospectus.
The share price of the Italian bank fell to a 19-year low on Thursday, slumping more than 17 per cent after it priced its rights offer at a steep discount to its share price, reflecting dour market conditions and a deeper sovereign-debt crisis.
However, comments in the prospectus about the future of the euro – picked up by Bloomberg News and FT Alphaville – may have caused some of the greatest anxiety. First, there is the risk that some countries could leave the euro zone: There is the “growing risk that other euro zone countries could be subject to an increase in borrowing costs and could face an economic crisis similar to that of Greece, Italy, Spain and Portugal, together with the risk that some countries, albeit those with a relatively small GDP, could leave the euro zone....”
Second, the prospectus raises the possibility of the euro itself ceasing to exist: “Concerns that the euro zone sovereign debt crisis could worsen may lead to the reintroduction of national currencies in one or more euro zone countries or, in particularly dire circumstances, the abandonment of the euro.”
Stocks were wobbling in early trading on Thursday, largely over concerns about Europe, but have since found their feet. In mid-afternoon trading, the Dow Jones industrial average was up 3 points, recovering from a dip of about 135 points earlier.
The recognition that the existence of the euro is threatened is a relatively new concept in the two-year-old crisis. However, some strategists had begun to weigh the possibility last year, before UniCredit published its prospectus – suggesting that, while currency abandonment is possible, it is also less likely to shock markets.