January 3, 2019 / 1:00 PM / 18 days ago

Italy's Banca Carige looking to use convertible bond to lift capital

MILAN (Reuters) - Italy’s Banca Carige (CRGI.MI) is looking for ways to use a 320 million euro (289 million pounds) convertible bond to boost capital and avoid any use of taxpayers money, one of its special administrators said on Thursday.

FILE PHOTO: The logo of Carige bank is seen in Rome, Italy, in this March 1, 2016 file photo. REUTERS/Alessandro Bianchi/File Photo

The European Central Bank picked three administrators on Wednesday to take charge of Carige to save the struggling lender after it failed to raise new capital.

Italy’s 10th biggest bank has said the administrators would seek fresh talks with the country’s FITD deposit guarantee fund which underwrote the bond last year to help meet capital plans.

The bond, which should have been reimbursed early this year after a successful cash call, carries a 16 percent yield.

“We’re reflecting (with FITD) on how best to use this instrument in the light of recent developments,” Fabio Innocenzi told Italy’s Class CNBC television when asked if the bond could be converted into shares.

If Carige fails to raise capital by June 30 falling short of ECB requirements, a conversion of the bond would allow it to bolster capital without tapping current shareholders for fresh cash.

Innocenzi said the aim was to avoid creating a situation where taxpayers or anyone else would have to pick up a bill.

A conversion into shares would help the FITD avoid having to guarantee deposits of up to 9.4 billion euros if the lender were compulsorily wound up, a source said on Thursday.

Innocenzi, Carige’s CEO until recently, said the bank was well capitalised, adding the plan was to press ahead with a restructuring plan put in place a few months ago to strengthen capital, shed unpaid loans and seek a possible merger partner.

Innocenzi said the bank was in an exploratory phase about pursuing a merger, adding there were financial and industrial reasons why the bank would be an attractive proposition.

Concern has been growing that Carige might struggle to attract a merger partner as recommended by the ECB after selling off some of its best assets in recent years to stay afloat.

Italian Deputy Prime Minister Luigi di Maio said on Thursday the government was following the matter “with great attention”.

The ECB stepped in for the first time since taking over as the euro zone’s top banking supervisor in 2014 after Carige’s top shareholder - the Malacalza family of steel entrepreneurs -refused to back a 400 million euro share issue last month.

Innocenzi said he had not been able to find an agreement with the Malacalzas so far but added “all channels remain open”.

The Malacalza family said on Thursday they still favoured recapitalisation after the ECB stepped in, but said they were seeking more information from the administrators.

The family also said they could consider other measures in future but did not elaborate.

Carige has raised 2.2 billion euros from investors in three cash calls since 2014, piling up 1.5 billion euros in losses over the same period, mainly due to bad loans.

The lender’s troubles stem from decades of mismanagement and overexposure to the depressed local economy.

The bank has also undergone a string of top management shake-ups since the Malacalzas replaced a local charitable foundation as the single largest shareholder in the bank.

Reporting by Andrea Mandala; Additional reporting by Riccardo Bastianello and Giulio Piovaccari; Writing by Stephen Jewkes; Editing by Susan Fenton and Edmund Blair

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