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UPDATE: Libya Dilutes UniCredit Stake In Capital Hike -Sources

Friday, Jan 20, 2012

-- Libyan central bank stake to fall to about 2.7% from nearly 5%

-- Libya fund still holds another 2.6% in UniCredit

-- UniCredit down on last day to trade rights to capital increase

-- Bank's capital increase ends Jan. 27

-- UniCredit one of biggest users of LTRO, says Morgan Stanley

(Adds detail and background throughout.)

   By Liam Moloney 
   Of DOW JONES NEWSWIRES 
 

ROME (Dow Jones)--Libya will cut its UniCredit SpA (UCG.MI) stake by almost a third because the north African country's central bank has decided not to take part in the Italian bank's EUR7.5 billion capital increase, effectively diluting its holding, three people familiar with the matter said Friday.

The Central Bank of Libya's UniCredit stake will drop to about 2.7% from almost 5%, the people told Dow Jones Newswires.

Libya, which is gathering resources to rebuild after a devastating civil war last year, owns another 2.6% of the bank through its sovereign wealth fund, the Libyan Investment Authority , or LIA . It wasn't clear to the three people if the LIA would maintain its stake in the Italian bank by participating in the capital increase, either fully or partially, or follow the central bank's lead.

UniCredit shares were down 1.13% at EUR3.3 at 1300 GMT Friday, the last day for investors to trade in rights to the bank's capital increase. The increase has another week to run and closes Jan. 27.

UniCredit is offering new shares at EUR1.943 each in a heavily discounted offer that severely pressured its stock price when it was announced in early January.

The bank's chief executive, Federico Ghizzoni, told reporters Thursday the market understood that UniCredit's fundamentals were good and confidence in the bank's capital increase "is returning."

The operation is being closely watched by investors as a test for the European banking sector, which is under pressure from regulators to raise large amounts of capital to cushion it against the euro-zone debt crisis.

The Bank of Italy said in December that Italian banks needed EUR15.37 billion in additional capital to meet the updated requirements set by the European Banking Authority, with the bulk of the shortfall, EUR7.97 billion, coming from UniCredit.

Friday marks the deadline for European banks to submit plans to their local regulators showing how they aim to improve their capital ratios.

The EBA requires banks to have a minimum 9% core Tier 1 capital ratio by the end of June 2012 after marking their sovereign-debt exposure to market prices, so as to improve the sector's financial strength.

The Financial Times reported Thursday that EU officials were worried that Italy's Banca Monte dei Paschi di Siena SpA (BMPS.MI) may not come up with a credible capital raising plan before the Friday deadline.

Monte Paschi didn't comment Thursday, but has said it has no plans to launch a capital increase, preferring to pursue other means such as the sale of assets to raise funds.

The EBA estimated that it had a capital shortfall of EUR3.28 billion. It aims to cover it by reducing risked-weighted assets, selling real-estate assets, and through joint ventures.

UniCredit also stood among the single largest users of the special three-year long-term refinancing operation, or LTRO, launched by the European Central Bank, according to a report by Morgan Stanley.

UniCredit took EUR12.5 billion under the facility, followed by other Italian banks, it showed.

-By Liam Moloney and Gilles Castonguay, Dow Jones Newswires; +39 06 6976 6924; liam.moloney@dowjones.com

(Giada Zampano in Rome contributed to this item.)

(END) Dow Jones Newswires

20-01-12 1446GMT