Trader Talk

Europe Weak on Spain, Unicredit Rights Offer


The euro is weaker, S&P futures are down, and European banks are still parking money with the European Central Bank. Spanish stocks slumped on reports it is seeking International Monetary Fund loans.

Grant Faint | The Image Bank | Getty Image

Next up for bailout funds, Spain? Spanish stocks are weaker on a report from Spain's Expansion newspaper that the government is considering applying for loans from the EU's rescue fund, the European Financial Stability Facility (EFSF) , and also from the International Monetary Fund . The EFSF announced yesterday it will be selling three-year bonds shortly to finance the bailouts of Portugal and Ireland.

How tough is it to raise capital in Europe? Italy's UniCredit bank fell 10 percent in European trading, launched a 7.5 billion euro ($9.7 billion) rights issue at a 69 percent discount to Tuesday's closing price. A rights offering is one made to existing shareholders, who are entitled to buy a specified number of new shares at a set price in a specific time frame. Shareholders were willing to take up only 24 percent of the new share offer — far lower than anticipated.

This is not good news for European banks, who have been told by the European Banking Authority that they must find 115 billion euros ($149 billion) of extra capital by the end of June. By the way, 7.5 billion euros is a huge offering for UniCredit — it's more than 50 percent of the bank's current market cap of 12.5 billion euros ($16.2 billion).

This is why banks do not want to raise capital, they'd rather sell assets. Who wants to raise capital when you have to offer it at a 69 percent discount?

Overnight deposits at the European Central Bank hit a record 453 billion euros ($591 billion). What does this formerly obscure statistic mean?

1. Banks are not buying large amounts of sovereign debt with the 489 billion euros ($633 billion) they borrowed from the ECB's new three-year lending program;

2. They are not lending large amounts to each other, or to creditworthy borrowers; and

3. They are likely hoarding the money as a cash cushion and to pay down their own debt, which will be rolling over in fairly large numbers this year.

An auction of German 10-year Bunds was sold at an average yield of 1.93 percent, lower than the 1.98 percent in a November auction. Bid-to-cover ratio of 1.3 was tepid, at best. And they did not sell the full allotment of 5 billion euros ($6.5 billion), they sold just over 4 billion ($5 billion).


1) Cabot Oil and Gas climbs 3.5 percent in pre-market trade after the gas explorer announced a two-for-one stock split and said it will increase its quarterly dividend by 33 percent. The company will raise its annual cash dividend on a pre-split basis from $0.12 to $0.16 per share. Additionally, Cabot said it will pay a regular dividend of $0.02 per share after the stock split. Cabot saw a strong 2011, posting the largest percentage gain in the S&P 500 last year.

2) The ICSC and Goldman Sachs Retail Chain Store Sales Index rose 1.2 percent for the week ending Dec. 31, rising for the third-straight week. An increase in gift-card redemptions, mild weather across the country, and a federal holiday following Christmas all contributed to higher sales. ICSC now expects December industry sales will increase 4 to 4.5 percent, up from its prior outlook of a 3.5 to 4 percent rise. American Eagle rises 1.8 percent in pre-market trading.

3) Mortgage applications for U.S. homes slid 4.1 percent in the final week of 2011, even as mortgage rates fell. A 9.6 percent drop in purchase loan requests and a 2.5 percent decline in refinancing requests weighed on mortgage demand. Borrowers struggled to muster up enough cash for down payments or clung to the sidelines due to unemployment worries.

4) Chrysler kicks off monthly auto sales reports that will pile in from carmakers throughout the day. Chrysler December U.S. sales were up 37 percent, in line with estimates, on strong demand for the Jeep Wrangler and Chrysler 200 sedan. The auto maker sold 1.37 million vehicles last year, about 284,000 more than in 2010. Analysts expect strong sales in December with new cars and trucks sales to reach around 12.7 million, up from 11.5 million in 2010.

Bookmark CNBC Data Pages:


Want updates whenever a Trader Talk blog is filed? Follow me on Twitter:

Questions?  Comments?