WHEN MORE CAPITAL MAKES THINGS WORSE

I sometimes worry about our Euro friends.  Banking and stock exchanges began over there and yet they continually demonstrate a near complete insensitivity to the working of markets.  In response to the new European requirement on bank capital, UniCredit, the largest bank in Italy went out yeaterday and bit the bullet in an attempt to raise an additional 7.5 billion Euros to meet the new standards.  They bit through the bullet, bit through their toung and didn't--and will not--come close.

UniCredit stunned everyone with a rights offering--that's an opportunity offered to present shareholders to purchase additional shares--that was priced at a discount to the then share price of 44%.  The price immediately crashed and continued to crash today bringing the value of all Italian bank shares into the crapper with it and doing nothing for bank shares all over Euroland.  Somewhere, somehow, some genius got the idea that this would be viewed as a positive step whereas the general response was that it was an act born in desperation as witnessed by the Euro tumbling to a previous thought to be rallying point of 1.2750.  These guys are nuts.

Now there is no secret that the laws surrounding the trading of securities in the EC are somewhat less demanding than over here and there is a heck of a lot less compliance.  So, in a geographic area where a senior member of the Swiss National Bank gets accused of insider trading in the country's OWN currency, would it surprise you if I suggested that a few of the boys in the know of UniCredit's plans might...I mean just might...have "shorted the box" on this deal?  For the novices out there shorting the box means selling short the shares of a company whose shares you already own...not selling your shares but engaging in a real short sale believing or knowing that the shares can be delivered at a much lower price in the future...a practice that I might add is somewhat frowned upon in this jurisdiction.  Now far be it from me to suggest that such a thing occured but there sat one of the great arb opportunities in recent memory; but as I said FAR BE IT FROM ME to suggest that ANYONE profited from this in an unseemly manner.  For those who still believe the old adage, "Truth will out," forget it.  This is Euroland, Pilgrim.

I could go on but what's the point.  There are more weird and wonderous things to explore which we will attempt to do tomorrow especially some of the goings-on in Greece.  So UniCredit is about to get more capital.  Woopee damn-do.  Things just got worse.