BlackRock Drops Rescue of Italian Lender

(Bloomberg) -- BlackRock Inc. handed Italy’s populist coalition a new dilemma on the eve of European elections, ditching a possible rescue of Banca Carige SpA in a move that could force the government to step in or see the lender fail.

The fractious coalition of the anti-establishment Five Star Movement and the rightist League is now in a bind: the parties’ leaders have both virulently denounced previous governments for spending taxpayer money to save failing banks.

Five Star and the League are already at loggerheads on a host of issues, from taxes to immigration, ahead of European Parliament elections on May 26. The two parties are also divided on what to do about troubled lenders, with lawmakers from the business-friendly League, based in Italy’s wealthy north, reluctant to resort to nationalization.

BlackRock opted “not to proceed with the initial expression of interest,” Carige said in a statement Thursday, without giving details. The administrators brought in to manage the bank’s recovery will continue to look for ways to ensure its stability and turnaround plans, the bank said.

Deal Seemed Imminent

Under the plan explored by BlackRock, the firm would have taken up as much as 400 million euros ($448 million) of a capital increase to take control of Carige. Italy’s Interbank Deposit Guarantee Fund would have swapped 320 million euros of bonds into shares to help bolster the bank’s financial position. A deal had seemed imminent earlier this week when the fund agreed to make the swap.

BlackRock abandoned talks after the fund’s U.S. investment committee gave a negative view of a possible rescue, people with knowledge of the matter said.

Five Star Senator Gianluigi Paragone, the party’s candidate to head a new parliamentary commission to investigate the banking sector, swiftly called for the state to step in.

“I’m in favor of public recapitalization, but only if the whole operation is managed by the state,” Paragone said by phone. “Why should the state pay for something when control of the bank goes to the usual people in the private sector?”

BlackRock Drops Rescue of Italian Lender

Giovanni Toti, governor of the Liguria region where Carige is based, said a state rescue was possible but called for a private-sector solution instead.

“The issue of a public rescue is present, but I hope it will stay in the background,” Toti, a center-right lawmaker, said in comments cited by Ansa news agency. The lender should “find a solution among its shareholders in the territory, who remain a point of reference for us, and an important industrial partner.”

Carige administrators have sent a letter to the bank’s staff saying they are working for a “private solution” following BlackRock’s decision.

BlackRock was the only potential private investor showing interest in the Carige recapitalization after Varde Partners decided not to pursue a deal, people with knowledge of the matter have said.

“Carige is on the brink of a collapse and, with no other market solution, its survival now depends on a government rescue,” said Wolfram Mrowetz, head of Italian brokerage firm Alisei SIM. “With European elections in a few weeks, this is the worst time for a crisis. It’s a hot potato for the populist leaders who criticized previous rescues.”

Despite the coalition’s internal squabbles, both parties have ripped the previous administration’s moves to nationalize Banca Monte dei Paschi di Siena in 2017 and to facilitate Intesa Sanpaolo SpA’s takeover of two Veneto-based banks, backed by almost 5 billion euros of public money.

Still, the timing of the BlackRock pullout could hardly be worse for the ruling coalition. Relations between Five Star and the League have reached their lowest point in nearly a year in power, after Five Star convinced Prime Minister Giuseppe Conte to oust an economic adviser to Deputy Premier Matteo Salvini, the League’s leader.

Reeling Liguria

While Carige isn’t a big national bank like Monte Paschi, its collapse would hurt the Liguria region, already hit hard by industrial failures, delays in developing infrastructure and last summer’s deadly bridge collapse in Genoa.

The European Central Bank took the unprecedented step of placing Carige under administration in January after an earlier recapitalization plan failed. The government said it would consider a precautionary recapitalization to restore the lender’s capital ratio, a solution used in the Monte Paschi rescue. The bank had extended a deadline to receive binding takeover offers to mid-May.

The administrators work hasn’t been wasted and the bank remains appealing enough to attract other investors, Finance Minister Giovanni Tria said Thursday in Rome. Time is of the essence to find other private parties interested in the bank, Tria said.

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