September 20, 2018 / 12:34 PM / a month ago

Carige picks new board as shareholder feud clouds future

GENOA, Italy, Sept 20 (Reuters) - Investors in Italy’s Carige met on Thursday in the port city of Genoa to elect a new board, but shareholder infighting casts a shadow over the troubled lender’s ability to solve its problems.

A boardroom fight that erupted over the summer has thrust Italy’s last remaining large problem bank back into the spotlight, after it struggled to push through its third cash call in four years in late 2017.

Heavily exposed to the battered economy of the northwestern Liguria region, Carige has been weakened by decades of mismanagement, with regulatory audits highlighting poor lending practices and questionable accounting methods.

Italy’s worst post-war recession and a crisis in the shipping industry which Genoa-based Carige had been financing have saddled the bank with a pile of soured loans which it has been sweating to reduce.

Having failed to fill a gap in its second-tier capital by selling hybrid debt, Carige has been given until Dec. 31 by the European Central Bank (ECB) to do so, unless it embarks on a merger with a stronger peer.

The ECB has also taken aim at Carige’s frequent management changes, demanding the bank fix its governance issues.

Local businessman Vittorio Malacalza is the top investor in Italy’s 10th largest bank after spending more than 400 million euros ($469 million) since 2015 on a 27.6 percent stake.

Malacalza, a feisty steel magnate, has fallen out with CEO Paolo Fiorentino, after pushing out his two predecessors, and is now seeking to replace him with UBS banker Fabio Innocenzi.

Malacalza is opposed by three other shareholders led by Italian financier Raffaele Mincione, who want to keep Fiorentino and steer Carige towards a merger.

“This bank ... needs a partner, strengthening it must be the goal,” said Guido Alpa, a former Carige director representing Mincione at the meeting.

But Malacalza’s representative Francesco Gatti told shareholders Carige had no suitors at present and Mincione’s plan was “as simple ... as it is dangerous”, and would put Carige at risk of being liquidated if a merger did not work out.

Bankers say Carige, which has been selling off assets to survive, still has a solid client base, but its bickering shareholders scare potential buyers away.

Mincione and the other two local investors together hold 15.2 percent of Carige, but their voting rights are capped at 9.99 percent as they don’t have regulatory authorisation to hold more than 10 percent.

Malacalza on Wednesday failed to win a court ruling to ban their list of board nominees altogether and Thursday’s vote now risks producing a board narrowly split between the two factions.

At current market prices, Carige is worth less than a quarter of the 2.2 billion euros it has raised in share issues since 2014, when it failed Europe-wide stress tests of the sector and moved under direct ECB oversight.

$1 = 0.8527 euros Editing by Mark Potter

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