Europe’s New Bank Sheriff Isn’t Hanging Around

(Bloomberg Opinion) -- The ink on his new business card is barely dry, yet Andrea Enria is wasting no time in making his mark as Europe’s top banking supervisor.

The European Central Bank has swept in to replace the board of Banca Carige SpA, an ailing Italian lender, with its own temporary administrators. It’s the first time in its four-year existence that the supervisor has used this tool.

Enria, in the job for just a day, is giving the bank a last chance to raise funds or find a buyer if it is to avoid a painful resolution. With Italy’s financial system still frail and the country’s politics in turmoil, he can ill afford another lender — however small — teetering on the brink.

The ECB’s move was triggered by last month’s decision by the lender’s dominant shareholder to backtrack on its pledge to bolster capital after months of discussions with regulators. At an investor meeting on Dec. 22, the Malacalza family abstained from voting on a 400 million-euro ($454 million) share sale, claiming it needed more information and details on the lender’s industrial plan. Just months earlier, the Malacalzas had won a boardroom battle to avoid a sale and pursue a capital hike instead.

Carige had planned to use the funds to repay other Italian banks that had committed to shoring up the lender’s capital weeks earlier by buying its subordinated bonds.

With total assets of 24 billion euros and direct deposits of about 14 billion euros, Carige is by no means systemic to the domestic financial system — Italian bank assets total about 2.5 trillion euros. Yet Italy’s financial system can ill afford another bank crisis: At least 10 have required some type of aid over the last two years, imposing heavy losses on bondholders and equity owners.

Even before last month’s dissent and resulting boardroom drama at Carige — the deputy chairman and another board member resigned in response — depositors appeared to be nervous. Direct funding from retail and corporate customers dropped 12 percent in the year to September, the last available numbers show. 

Carige’s challenges in large part have been self-made. Newcomers to finance, the Malacalzas have struggled to turn round the unprofitable lender burdened by bad loans and persistent poor governance. The bank has been run by five CEOs in as many years. 

The Italian government’s months-long rift with the European Union over its spending has prompted a rise in debt yields that’s led to heavy losses on banks’ holdings of Italian sovereign debt and propelled funding costs to dizzying heights.

In November, UniCredit SpA, the blue chip of Italian banking, sold five-year bonds that will pay the equivalent of 420 basis points over the euro swap rate — six times what it paid on five-year euro senior non-preferred bonds last January.

For Enria, the challenge is to avoid any further damage to investors’ faith in Italian banks that could worsen their funding difficulties. This bold first move is a sign he might just succeed.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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