LONDON UniCredit's plan to shore up its balance sheet could earn investment banks underwriting its rights issue up to an estimated 325 million euros ($345 million) in fees, the largest such haul for any Italian share sale.
The bank, which has a market value of 17 billion euros, wants to tap equity markets early next year for one of Europe's biggest rights issues of the past decade, raising 13 billion euros to shield itself from a broader banking crisis.
With the wider Italian banking system plagued by bad debts, the country is home to some of the highest fee payers in Europe for equity capital deals. Underwriters charge more for riskier issues as they may have to mop up any unsold shares.
Unicredit's capital buffer was one of the slimmest among banks deemed important to the financial system in the latest European Union stress tests, results of which were announced in July.
Chief Executive Jean Pierre Mustier, who was appointed the same month, has gathered 10 banks to help him fix UniCredit's balance sheet with the rights issue, the size of which goes well beyond similar deals launched by Deutsche Bank and Standard Chartered in the past two years.
The banks underwriting the cash call by UniCredit - Italy's biggest bank - will share a pot of between 195 and 325 million euros, according to estimates from Freeman Consulting.
Underwriting fees for rights issuances typically stand at 2-3 percent of the overall amount. Freeman estimated the banks will offer UniCredit a small discount, charging between 1.5 and 2.5 percent, given the size of the transaction.
Morgan Stanley, UBS , Bank of America Merrill Lynch, JPMorgan and Mediobanca have secured leading roles as joint global coordinators.
Of these, Morgan Stanley and UBS will also act as "structuring advisers". The duo recently worked with UniCredit on a series of divestments which resulted in overall proceeds of more than 6 billion euros for the Italian lender.
Five other banks - Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs and HSBC - have come onboard as co-global coordinators and joint bookrunners on the offer, which is set to be one of Europe's largest equity capital markets deals next year.
Bank of America's global head of equity capital markets, Craig Coben, predicted a series of such deals and initial public offerings next year in a sector which investors have been cautious about due to its troubles since the financial crisis.
"We should see a combination of high-profile IPOs and capital increases from European financial institutions over the course of 2017," Coben said.
"These will be major liquidity events and will give investors the opportunity to increase their exposure to the sector and to cure their longstanding underweight."
Italy remains a lucrative market for large investment banks.
Ailing Monte dei Paschi di Siena had to cough up more than $400 million in underwriting fees for two consecutive capital increases in 2014 and 2015. Shares in the bank, which has a market value of 600 million euros, have fallen 83 percent this year.
However, the banks that signed up to underwrite Monte dei Paschi's latest attempt to raise 5 billion euros in an emergency cash call have all walked away amid scant investor interest.
JPMorgan, Bank of America, Citigroup, Credit Suisse, Deutsche Bank and Goldman Sachs agreed in July to help the world's oldest bank clinch a rescue, but never made a firm commitment to pull off a deal.
Deutsche Bank itself paid about 119 million euros in 2014 to underwriters for its 8 billion euro capital increase, according to the prospectus for its rights issue. The deal was priced at about 1.5 percent of the overall amount, given its low risk profile.
Yet the German lender may still fall short of capital next year as it tries to settle U.S. allegations that it mis-sold mortgage-backed securities for around 2.75 billion euros during the global financial crisis, analysts said.
This means Deutsche Bank may need to press ahead with another issue depending on the final demands by the U.S. Department of Justice.
Credit Suisse is also expected to pay attractive fees as it seeks to raise 2-4 billion Swiss francs ($2-4 billion) by selling 20-30 percent of its domestic unit in what could be Switzerland's biggest stock market listing in more than a decade.
"Financial institutions have historically been the most active issuers of equity in Europe," said Bank of America's Coben. "It is consistently the most active sector."
($1 = 0.9425 euros)
($1 = 1.0104 Swiss francs)
(editing by David Stamp)