January 2, 2019 / 9:29 AM / 3 months ago

ECB calls in administrators to save Italy's Carige

MILAN/FRANKFURT (Reuters) - The European Central Bank appointed three temporary administrators on Wednesday to take charge of Italy’s Carige bank (CRGI.MI) in an unprecedented effort to save the struggling lender after it failed to raise new capital.

Italy’s 10th largest bank said the administrators would seek fresh talks with the country’s deposit guarantee fund, which has lent it 320 million euros (£288 million) via a convertible bond last year to help it meet a year-end deadline to boost capital.

Carige said the administrators would continue working on measures to strengthen the bank’s capital, shed unpaid loans and search for a possible merger partner.

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

This followed months of growing concern over the financial strength of Genoa-based Carige, the last major Italian bank considered to be a problem after the sector was hit by the financial crisis and Italy’s weak economy.

Under the reshuffle, Chairman Pietro Modiano and CEO Fabio Innocenzi would stay on as administrators together with Raffaele Lener, an outside legal expert who has worked at both Italy’s market regulator Consob and the Bank of Italy.

“Temporary administrators are tasked with safeguarding the stability of a bank by closely monitoring its situation, continuously informing the ECB and, if necessary, taking action to ensure that the bank restores compliance with capital requirements in a sustainable manner,” the ECB said.

One of the administrator’s first tasks will be to hold talks with Italy’s depositors’ guarantee fund (FITD), whose bond was meant to be reimbursed early this year after a successful share issue.

But it could be converted into equity if the bank fails to raise capital by June 30 and falls short of the ECB’s requirement, giving Carige an option to bolster its capital without tapping existing shareholders for fresh cash.

European lawmaker Sven Giegold called for an “in-depth state aid investigation” into the matter but the European Union’s antitrust chief said in a letter to him the bond did not seem to break the rules because it had been bought voluntarily by the private sector.

Carige’s shares were suspended for a day on Wednesday after a request from the bank. Shares in other Italian banks fell on the news, with Italy’s banking index .FTIT8300 down 1.5 percent by 1530 GMT.

The ECB’s move had been led by the deputy chair of the Single Supervisory Board, Sabine Lautenschlaeger, because the new chair, Italy’s Andrea Enria, was only due to take office on Jan. 2.

It followed the resignation of the most of Carige’s board earlier on Wednesday and led to the removal of the bank’s management and control bodies.

MERGER PARTNER

The ECB, which directly supervises Carige, has told the bank to complete its capital strengthening plan and seek a merger with a stronger partner.

In comments made later on Wednesday Modiano told state TV Rai that no merger was currently on the horizon. “There is nothing in sight,” he said.

To stay afloat in recent years Carige has sold off its best assets, such as its insurance units, and so would struggle to attract a merger partner as recommended by the ECB.

The Malacalza family holds 27.6 percent of Carige after investing more than 400 million euros for a stake worth 20 million euros at current market prices.

Explaining their decision to block a new capital increase on Dec. 22, the Malacalzas said they first wanted more clarity on the bank’s future business plan and possible merger options as well as any further requests from the regulator.

One source familiar with the matter said the administrators were tasked with trying to convene another shareholder meeting to seek approval for the cash call, but doubts remain over how the Malacalzas can be persuaded to change their stance.

A spokesman for the family was not immediately available for comment.

Italy bailed out Monte dei Paschi di Siena (BMPS.MI) in 2016 and bankrolled the rescue of two smaller lenders based in the Veneto region by Intesa Sanpaolo (ISP.MI) in 2017.

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

If the latest share issue fails to win shareholder approval, the lender may need to be liquidated with taxpayer money, as happened with the Veneto-based banks.

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.

Carige’s troubles stem from decades of mismanagement and too much exposure to the depressed local economy. It 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 Giulio Piovaccari in Milan and Francesco Canepa in Frankfurt; Writing by Agnieszka Flak; Editing by Adrian Croft and David Evans

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