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Italian banks to help fill Carige's capital hole in effort to avert crisis - sources

Italian banks to help fill Carige's capital hole in effort to avert crisis - sources
FILE PHOTO: A man rides a bicycle past a Carige bank in Rome, Italy September 20, 2018. REUTERS/Max Rossi/File Photo -
Max Rossi(Reuters)
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By Stefano Bernabei and Valentina Za

ROME/MILAN (Reuters) - Healthy Italian banks will help to fill a 400 million euro (350 million pounds) hole on Banca Carige's <CRGI.MI> balance sheet, sources close to the matter said on Monday, in order to avert a possible crisis that would further destabilise the sector.

Italian banks have come under renewed pressure due to their inflated holdings of the country's government bonds, the value of which has fallen sharply since an anti-EU and anti-austerity populist coalition government formed in mid-May.

Carige is Italy's last remaining large problem bank. Weakened by years of mismanagement and more recently by shareholder infighting, it has fallen behind in the restructuring process that has seen rivals shed bad debts in the past two years.

The bank has twice this year failed to issue subordinated debt due to the high yields demanded by investors. The European Central Bank (ECB) has given it until Nov. 30 to detail how it will fill its capital gap before the end of the year.

With institutional funding markets closed to all but the strongest lenders, Italian banks would take up the bulk of a 400 million euro subordinated bond Carige plans to issue to quickly replenish its second-tier capital, the sources said.

The bank's leading shareholders, mostly local businessmen, are also expected to pitch in.

Carige will then launch a new share issue in coming months to repay the bond, one of the sources said. The banks that bought the bond will convert the debt into equity by taking on unsold shares, with a view to eventually liquidating their holdings, the source added.

The process will be carried out through a section of Italy's depositors' guarantee fund dubbed 'Voluntary Scheme', to which all the main banks contribute on a voluntary basis to avoid falling foul of European state aid rules.

Members of the 'Voluntary Scheme' were due to meet at 1100 GMT on Monday to approve the intervention, one of the sources said.

Based in the port city of Genoa, Carige is heavily exposed to the economy of the northwestern Liguria region.

A deep recession in Italy and a global slump in the shipping industry have dealt harsh blows to the local economy, which is now grappling with the fallout from the deadly collapse of a Genoa bridge that severed the port's main artery to Europe.

Carige last raised funds in December 2017, when it resorted to asset sales to push through its third cash call since 2014. It has raised a total of 2.2 billion euros in capital in the past four years.

The bank's board meets on Monday to approve third-quarter results as well as the proposed measures to plug the capital gap.

Carige's shares and bonds were suspended from trading on Monday pending the bank's announcement.

Complicating matters, Carige has been through a series of management changes because its top shareholder, local businessman Vittorio Malacalza, has pushed out three chief executives in as many years.

Malacalza in September won a boardroom battle and appointed former UBS banker Fabio Innocenzi as chief executive.

Carige has since hired UBS as adviser to assess a possible merger, which bankers have said in the past was made difficult by the bank's capital and restructuring needs and its bickering shareholders.

The ECB has told Carige to consider a merger and said the year-end deadline could be extended if it sought a tie-up with a stronger peer.

(Additional reporting by Francesca Landini, Editing by Kirsten Donovan)

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