Ancient Genoa Bank Riven by Power Battle as ECB Demands Fix

(Bloomberg) -- Whoever wins the very public scrap for control of Italy’s Banca Carige SpA on Thursday, they won’t have much time to enjoy the victory.

A new board proposed by top investor Vittorio Malacalza or one supporting current Chief Executive Officer Paolo Fiorentino will take leadership of a lender that has only weeks to satisfy urgent European Central Bank demands that it fix a chronic capital shortage, possibly through a merger. Just to complicate matters, the board may end up split between the rival slates.

The tension between investors was palpable Genoa’s Teatro della Corte Thursday morning, where about 300 small shareholders shared the space with the big investors, who were ranged along the front row. Clashes started at the outset, with disagreements over details such as who should chair the meeting and who should act as the notary and secretary.

“Time is running out and there is no visibility on the future, so risks of a resolution by the ECB are quite high,” said Stefano Girola, a portfolio manager at Alicanto Capital SGR. “As it is, the bank doesn’t have a brilliant future. It needs a buyer to increase capital, size and profitability.”

Carige remains mired in problems that plagued much of Italy’s financial industry, long after most other major lenders executed turnarounds or were absorbed or rescued with the state’s help. While the bank is probably too small to put the wider financial system at risk, its failure could shatter a fragile return to confidence in Italy and its banking sector.

The fight for control of Carige pits Malacalza, the bank’s biggest shareholder, against a CEO he originally nominated. A feud between the two blew up after the ECB in July rejected the bank’s capital-conservation proposal, demanded a new plan by Nov. 30 and said it wants its financial-strength requirements to be met by the end of the year. The ECB confirmed the rejection on Wednesday, according to the bank.

“The two fighters are playing a chess game in which they only look at the next move,” said Carlo Alberto Carnevale Maffe, a professor of business strategy at Milan’s Bocconi University. “The lack of a strategy on how to face the real problems related to the regulators’ requests can backfire, whoever wins the game.”

Since the ECB rebuke, Malacalza has repeatedly criticized Fiorentino’s management and demanded a new board led by UBS executive Fabio Innocenzi as CEO and former Intesa Sanpaolo SpA manager Pietro Modiano as chairman. The bank’s next three largest investors then joined forces to sideline Malacalza.

Raffaele Mincione, whose company owns about 5.4 percent of Carige signed a shareholder agreement with Gabriele Volpi, a Genoa-born tycoon who made his fortune in Nigeria’s oil industry and holds about 9 percent of Carige, and Aldo Spinelli, owner of almost 1 percent. They are pushing for a board with Mincione as chairman and Fiorentino keeping his post.

A victory for the CEO would bolster his strategy of seeking a merger partner quickly, while Malacalza has indicated he wants the bank to clean up its own house before pursuing any tie-up. Modiano echoed Malacalza’s view on the sidelines of the shareholders meeting Thursday when asked about the ECB’s call for a merger.

Speaking for the other side, Mincione told reporters at the meeting that Carige needs to merge with another bank to comply with the ECB "and this would be hard to do in two months if the current CEO isn’t confirmed.”

Legal Maneuvers

The verbal sparring preceding the vote is just the latest episode in the battle between the two sides. Malacalza earlier asked a judge to block the presentation of Mincione’s list, arguing that the bloc supporting it didn’t receive ECB authorization to act as an influential shareholder. While the judge declined to block the list, the Bank of Italy froze the Mincione group’s voting rights at 10 percent.

Carige is struggling to regain market confidence after the stock fell to a fraction of a cent. The 535-year-old lender is running short of options after tapping investors for 500 million euros late last year.

While Carige isn’t a big national bank, its collapse would hurt a region of Italy already hit by industrial failures, delays in developing infrastructure and more recently by the deadly bridge collapse in Genoa. It would also spark a political debate, putting the country and its financial industry in the spotlight again.

Carige’s total capital ratio stood at 12.23 percent in the first quarter, almost a percentage point below the minimum sought by the ECB. The bank, whose market value has shrunk to 494 million euros from a peak of more than 4 billion euros in 2006, has about one million customers. In March, Carige failed to raise as much as 400 million euros of financing through the issue of Tier 2 bonds, partly blaming market conditions resulting from Italian political turmoil.

“I don’t think the bank is a resolution risk” because shareholders have indicated they’re willing to add fresh capital if needed, said Fidentiis Equities analyst Fabrizio Bernardi. “The worst-case scenario would be electing more or less the same number of directors from each side, moving the battle among investors to the board, thus slowing the recovery process.”

--With assistance from Chiara Remondini.

To contact the reporter on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen, Keith Campbell

©2018 Bloomberg L.P.