August 7, 2018 / 10:10 PM / 10 days ago

Banca Carige says ECB made no reference to possible 'resolution'

MILAN (Reuters) - Banca Carige (CRGI.MI) said on Tuesday the European Central Bank (ECB) had made no reference to a possible “resolution” of the Italian bank in rejecting its latest capital plan, dismissing a risk flagged by Moody’s ratings agency following a downgrade.

FILE PHOTO: The Carige bank logo is seen in Rome, Italy, April 16, 2016. REUTERS/Stefano Rellandini/File Photo

Resolution is a procedure that ensures the orderly liquidation of banks and involves a series of measures used by the authorities as an alternative to bankruptcy proceedings.

Boardroom conflicts have thrust Carige, Italy’s last remaining large problem bank, into the spotlight, putting at risk a turnaround which was just starting to bear fruit.

The lender is facing a management crisis after its chairman, deputy chairman and several board members resigned in disagreement over the leadership of Chief Executive Paolo Fiorentino.

In July, the ECB had given the Genoa-based lender until the end of the year to close a capital shortfall, or to start seeking a merger with a stronger peer.

Earlier on Tuesday, Moody’s downgraded Carige and placed it under review for further downgrade, citing governance tensions which it said were “an impediment to the bank’s effective restructuring”.

It also said there was “the heightened risk that Carige could be placed in resolution” after the European Central Bank rejected the lender’s capital conservation plan last month.

However, Carige said the ECB’s decision “does not contain any reference to a possible resolution”.

Fiorentino is overseeing a balance-sheet clean-up demanded by the ECB and last year managed to pull off a capital increase needed to keep Carige in business.

But its failure this year to issue a hybrid bond that would have boosted its lower-quality capital means Carige’s total capital ratio lags a 13.1 percent threshold set by the ECB.

Carige said the ECB had rejected the bank’s latest capital plan and had asked for new measures by Nov. 30 that would allow the lender to comply with mandatory capital levels by Dec. 30.

Italy’s 10th largest bank is betting on asset sales to boost its total capital ratio to 13 percent, up from the current 11.9 percent and close to a 13.125 percent threshold set by the ECB.

In a separate statement on Tuesday, the lender said it would enter exclusive talks with Bain Capital until Oct. 15 regarding the sale of an unlikely-to-pay loan portfolio with a gross book value of up to 400 million euros ($464 million).

Carige added its board had approved the text of its reply to the ECB, which it would send to the European authorities within the prescribed timeframe.

Reporting by Agnieszka Flak in Milan; Editing by Tom Brown

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