ECB instructs Italian lender to submit new capital-boosting plan

Bloomberg

Banca Carige SpA, the Italian lender hit by board and management departures, said it has been instructed by the European Central Bank (ECB) to submit a new capital-boosting plan and consider options including a merger. The shares dropped.
The ECB’s move came after the central bank rejected a capital-conservation plan presented by the Genoa-based bank on June 22, and requested a new plan by November 30. The ECB wants its capital requirements to be met by the end of the year, according to a statement from Carige.
The ECB instructed the bank to “evaluate all options including a merger,” according to the statement. Carige said it “will respect every legitimate timing indicated by the ECB.”
Carige fell as much as 8.1 percent, the most in four months. The shares have declined by 60% in Milan trading over the last 12 months, giving the company a market value of 455 million euros.
“Re-establishing a fully functioning and peaceful governance is a necessary prerequisite to continue the de-risking of the bank,” Riccardo Rovere, an analyst at Mediobanca, wrote in a report. “In turn, a de-risking of the bank is necessary to regain an acceptable level of profitability. Improving the bank’s risk profile and profitability are necessary to preserve or enhance the shareholders’ value, with or without M&A.”
Italy’s banking crisis is subsiding and many lenders are improving their performance and shedding bad loans, but Carige is still struggling to regain investor confidence. Carige is facing a governance crisis, which led Chairman Giuseppe Tesauro, main shareholder and board member Vittorio Malacalza to resign.

Investor Malacalza, whose investment company increased its holding in Carige to 20 percent during the rights offering, has criticized the bank’s management under Chief Executive Officer Paolo Fiorentino. The executive is carrying out a turnaround plan that includes the sale of non-performing loans, properties and non-strategic assets.
The company bolstered its capital reserves in a 500 million-euro share sale in December and is making plans to reduce its stock of non-performing loans. The bank’s balance sheet has shrunk by nearly half in the last five years. It had assets of just under 24 billion euros at the end of the first quarter.