ECB Tells Italy's Carige to Boost Capital, Consider Merger

(Bloomberg) -- The European Central Bank told embattled Italian lender Banca Carige SpA to submit a new plan to boost its capital, saying it should consider a merger as an option and swiftly resolve its corporate-governance crisis.

The Genoa-based bank said Sunday that that the ECB rejected its own proposed capital-conservation proposal, demanded a new plan by Nov. 30 and wants its financial-strength requirements to be met by the end of the year. The Bank of Italy is paying “a high level of attention” to Carige’s situation, Carmelo Barbagallo, the banking supervision chief at the Italian central bank, told reporters in Milan.

Hit by boardroom turmoil, Carige is struggling to regain investor confidence even as Italy’s banking crisis subsides. The ECB also demanded that the bank swiftly find a replacement for Chairman Giuseppe Tesauro, who resigned last month because of differences over the management of the bank. Carige had agreed with the ECB last year to reduce its stock of non-performing loans, but a 500 million-euro ($585 million) share sale in December failed to allay investor concerns.

“Given the turbulent governance of the bank, we are not surprised by the actions taken by the ECB,” Riccardo Rovere, an analyst at Mediobanca, wrote in a report. “Re-establishing fully functioning and peaceful governance is a prerequisite to continue the de-risking of the bank. Improving the bank’s risk profile and profitability are necessary to preserve or enhance shareholder value, with or without M&A.”

Share Decline

The shares have declined by 60 percent over the last 12 months, reducing the company’s market value to 455 million euros. On Monday, the shares fell 5 percent as of 5 p.m. local time in Milan.

The bank’s balance sheet has shrunk by nearly half in the last five years. It had assets of just under 24 billion euros at the end of the first quarter. Investor Vittorio Malacalza, whose investment company increased its holding in Carige to 20 percent as a result of the December rights offering, has criticized the bank’s management under Chief Executive Officer Paolo Fiorentino, and recently resigned from the board.

“Strong leadership is particularly important to overcome differences and secure board backing for the necessary strategic decisions,” Carige said.

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