Italian Bank Carige Put Under Administration for Capital Woe

(Bloomberg) -- The European Central Bank took the unprecedented step of placing the cash-strapped Italian lender Banca Carige SpA in temporary administration, a move that could be a prelude to a sale or merger.

The administrators and a three-member surveillance committee will focus on reducing balance sheet risk and finding a possible partner for the bank, Carige said in a statement. The ECB has consistently told the lender that a merger would be a good option, a person familiar with the matter said, asking not to be identified because they aren’t authorized to discuss the deliberations.

The move raises the question of who would want to merge with or buy a bank with unresolved capital issues, feuding investors and a share price that’s fallen to a fraction of a cent. Italian banks, hit by the falling value of their government bond holdings, may not have the appetite for more risk. Some analysts suggest that the Italian government may be compelled to step in, but that wouldn’t be straightforward either.

“There does not seem to be a political will, or capacity, to inject more money to save Carige, and at the same time there is no white knight to take over the operations,” said Jakub Lichwa, a credit strategist at Royal Bank of Canada. As spreads on Italian debt have widened “all banks are looking mainly at their own finances,” he said.

State Intervention?

Italy’s finance ministry is studying a plan under which Carige is bought for a symbolic price, mirroring Intesa Sanpaolo SpA’s takeover of two Veneto-based banks with state support in 2017, La Stampa reported Wednesday, without saying where it got the information. UniCredit SpA could be a possible partner in such an arrangement, Sole said. UniCredit declined to comment on that report, according to news agency Ansa.

“The Italian government may well be willing to offer some support to a buyer to solve the problem, while not being seen to be directly saving a bank,” Werner Schirmer, an analyst at Landesbank Baden-Wuerttemberg, said by phone. “Italy’s small banks have a few skeletons in their closets. The bigger ones aren’t in the clear, but they’ve been doing their homework on bad loans and costs.”

Italy’s banks racked up Europe’s biggest pile of non-performing loans, prompting national and European Union officials to seek solutions including the state-supported rescue of Banca Monte dei Paschi di Siena SpA as well as several government-backed mergers. Carige remains one of the only large- to medium-sized banks that still hasn’t dealt with its balance sheet crisis or undergone a forced solution.

EU Watching

Bank interventions under previous governments have involved lengthy negotiations with EU officials to ensure they don’t violate the bloc’s rules restricting state aid to the financial sector.

“One solution could be a government loan to a resolution fund -- something akin to Banco Espirito Santo -- which does not immediately hit the banking sector, and instead spreads the impact over a longer time period,” RBC’s Lichwa said.

Carige has struggled to reduce a mountain of bad debt, like many Italian banks. But the gravity of its troubles came to a head when the lender’s biggest shareholder, Vittorio Malacalza, rejected a plan to raise capital, prompting most of the bank’s board to resign and leading the ECB to step in.

Malacalza Investimenti, which owns 27.5 percent of the bank, blocked a vital capital increase plan in late December, leaving the lender without one of the two pillars of a turnaround plan approved by the ECB. Top managers including CEO Paolo Fiorentino were replaced in September after Malacalza won a board battle to pursue a capital-raising rather than seek an immediate merger.

The stock has plummeted as the bank’s struggles dragged on and the shares last traded at .0015 euros before being suspended on Wednesday.

Malacalza’s rejection of the rescue plan prompted several boardroom exits, Carige said. The administrators are Fabio Innocenzi, who was appointed CEO of Carige in September, Pietro Modiano, the bank’s chairman until Wednesday’s resignations, and Raffaele Lener, the ECB said in a statement.

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