Record amounts of deposits are being lodged overnight with the European Central Bank as banks continue to seek a safe home for their cash amid continued anxiety about the health of the eurozone financial system.
Much of the focus remains on Italian bank UniCredit whose shares on Monday slumped another 13% on the first day of trading of its €7.5bn (£6.2bn) cash call. The fundraising has hit its share price hard and raised concerns about the likelihood of any other banks raising cash from investors.
"The share price is down more than 40% in the past five days. For any other European banks that were considering raising new equity via the markets, the performance of UniCredit must have severely put them off," said Louise Cooper, markets analyst at BGC Partners. "Although UniCredit is guaranteed to gets its €7.5bn as the issue is fully underwritten, this is not helping the bank's reputation."
If investors shun the cash call, as market experts fear, 27 banks underwriting the issue will be left holding the shares.
UniCredit needed to raise the cash following stress tests last year by the European Banking Authority. It had the second biggest shortfall among the banks tested – the biggest was Santander. Santander insisted it had found the €15bn required through a series of measures that have enabled it to avoid tapping investors for cash.
Data released by the ECB showed that overnight deposits have reached a new high of €464bn, which means banks are prepared to earn lower interest on their deposits than they would from lending to each other. The Bank of Italy admitted that funding from the ECB for its lenders had risen to nearly €210bn in December from €41.3bn in June. There are also reports that cash-rich companies are lending to cash-strapped banks.
