Here is a good example of how asymmetric information and moral hazard can cause apparently odd investor behaviour.
Unicredit is a large Italian bank. By some measures it is not too different in size from Goldman Sachs. And it is having to raise capital to cover what the market sees are impending losses. In an attempt to raise euro7.5 billion, it had a rights issue. It priced the rights at a 69% discount with the hope of ensuring that it was fully subscribed. But at the time of writing, Unicredit had managed to sell less than 30% of the proposed issuance. A low price should ensure that people buy lots of the stuff, right? Wrong, when investors don’t know what they are getting the usual laws of demand and supply don’t hold. The low price may have actually hurt the success of the offering, because investors see it as a signal. Here is what one market commentator siad:
Here is what one market commentator said.
“Whatever way you slice and dice it, UniCredit’s discount is much bigger than for the other banks and that being the case, I think it’s come as a bit of a shock to some investors, and I think some of them are just bailing out,” see story here: