Italy's Banks May Need Capital Injections, Saccomanni Says

By Svenja O'Donnell and Michele Seghizzi

Oct. 8 (Bloomberg) -- Bank of Italy Director General Fabrizzio Saccomanni said Italian banks may need more capital after UniCredit SpA asked investors for more funds to help it weather the financial crisis

``It's possible, because capitalization is an important part of the situation,'' Saccomanni, when asked if banks will need extra funds in an interview yesterday with Bloomberg Television. ``It's the effect of these tensions that have slightly reduced the value of capital in comparison to what it was a few weeks ago.''

UniCredit, Italy's biggest lender by assets, cut its profit forecast on Oct. 6 and said it will seek to raise 6.6 billion euros ($9 billion) in capital. The crisis led central banks to pump more than $480 billion into money markets yesterday as Iceland's financial system came close to collapse and lending rates soared.

``I maintain that we begin from a basis of adequate capitalization,'' Saccomanni said before an event at the London School of Economics. ``It's all about an effect due to these tensions at the moment, not because of a structural lack of capital.''

UniCredit shares dropped 12 cents, or 4 percent, to 2.8 euros in Milan yesterday. The stock has fallen 51 percent this year, compared with a 43 percent decline in the Bloomberg Europe Banks and Financial Services Index. UniCredit Chief Executive Officer Alessandro Profumo said on Oct. 6 that the bank had underestimated the scale of the global financial crisis.

Capital Ratio

The planned capital increase will boost UniCredit's Tier I capital, a measure of financial strength, to 6.7 percent by the end of the year, making it Italy's most capitalized lender, Chairman Dietr Rampl said on Oct. 5.

``The system, we've always said, is well capitalized and has sufficient liquidity,'' Saccomanni said. ``Naturally we're at a moment of particularly acute tension so we are monitoring the situation with great attention, but we believe that we can resolve the situation calmly.''

Saccomanni said that central banks have fought to thaw money markets by providing funds ``in innovative forms'' and with ``new instruments.''

``There is liquidity but we need to get it more fluid,'' he said. ``We need banks to regain their function of doing a correct evaluation of risks and to regain their role as financial intermediaries.''

``The result of these interventions in the end will be a return to normality,'' Saccomanni said.

To contact the reporters on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net; Michele Seghizzi in London at mseghizzi@bloomberg.net.