Libyan central bank to spurn UniCredit capital increase

Libya’s central bank, a major shareholder in Italian bank UniCredit, will not take part in a planned recapitalization and sharply cut its stake, sources close to the matter were quoted Friday as saying by Dow Jones Newswires.

The Libyan central bank’s current holding of 4.9 percent of the capital in UniCredit would be cut to around 2.7 percent, three sources said.

Rome had unblocked funds frozen when Muammar Qaddafi was running Libya so the central bank could take part in a capital increase worth a total 7.5 billion euros ($9.7 billion), and it was initially expected to do so.

UniCredit declined to comment on the report.

In addition to the Libyan Investment Authority, which owns a separate UniCredit stake of 2.594 percent, major shareholders in the Italian bank include the sovereign investment fund of Abu Dhabi, which holds 4.99 percent.

That fund said Tuesday that its holding would increase to 6.5 percent, which would make it the biggest shareholder.

UniCredit needs the capital increase to meet new reserve levels established by banking regulators, but to attract investors, the bank was forced to price new shares at the heavily discounted level of 1.943 euros.

That spooked investors already nervous about the state of eurozone banks in general.

Several major UniCredit shareholders, including German insurance giant Allianz and Italian banking foundations, have already undertaken to buy around 24 percent of the shares in the capital increase, which ends on January 27.

European authorities are forcing the region’s banks to quickly raise their core capital to 9.0 percent by June so they are better positioned to withstand shocks from the eurozone debt crisis.

Following the 2008-09 global financial crisis, regulators agreed to strengthen banks’ core capital reserves from 2.0 percent to 7.0 percent under Basel III rules, but the banks were given nearly a decade to comply.

The largest banks, whose failure could shake the entire financial system, were told to boost reserves to the equivalent of 9.0 percent of their asset base, the quicker the better.

UniCredit said on November 14 that it planned to raise its core capital from 8.74 percent to 9.0 percent in 2012 and then to 10 percent by 2015.