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, 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, 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 November 30 and said it wants its financial-strength requirements to be met by the end of the year. The ECB confirmed the rejection, 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 criticised 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.
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.