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Italy's Carige bank discussed failed cash call approval with ECB - source

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By Reuters
Italy's Carige bank discussed failed cash call approval with ECB - source
FILE PHOTO: A man rides a bicycle past a Carige bank in Rome, Italy September 20, 2018. REUTERS/Max Rossi/File Photo   -   Copyright  Max Rossi(Reuters)

By Valentina Za

MILAN (Reuters) – Italy’s Banca Carige <CRGI.MI> has discussed with European Central Bank supervisors the rejection of a cash call needed to safeguard the troubled Italian lender’s future, a source familiar with the matter said on Monday.

The fate of the Genoa-based bank is in question after its biggest investor, the Malacalza family, blocked approval for a 400 million euro (359.36 million pounds) new share issue at a shareholder meeting on Saturday.

Carige said on Sunday CEO Fabio Innocenzi and Chairman Piero Modiano would discuss the outcome of the meeting with the authorities.

The source said the discussion had taken place without giving any details of its content.

Italy’s 10th largest bank is under the direct oversight of the ECB.

A spokesman for Banca Carige declined to comment.

Modiano and Innocenzi, a former UBS banker, took over in September after the Malacalzas pushed out a third chief executive in as many years.

The family of local entrepreneurs has invested more than 400 million euros in Carige since 2015 to build a 27.6 percent stake which was worth just 25 million euros at Friday’s market price.

A representative for the family’s holding company told Saturday’s meeting they did not oppose a new recapitalisation but needed more details first on the bank’s new business plan, merger options and any potential new losses or capital demands from the regulator.

The ECB will set a new capital threshold for 2019 for Carige, as for other lenders, early next year.

Governance problems have compounded Carige’s troubles, which stem from decades of mismanagement and an excessive exposure to the suffering local economy.

Following the rejection, directors Lucrezia Reichlin and Raffaele Mincione resigned from the board.

The bank said on Sunday the board remained committed to protecting the interests of customers and shareholders.

Carige has raised 2.2 billion euros from investors in three share issues since 2014.

The latest stock issue was meant to allow Carige to convert into equity a 320 million euro subordinated bond it sold to other Italian lenders last month as part of an industry-financed rescue plan.

Italian banks were keen to stave off a crisis at a time when market pressure is already intense due to a spike in borrowing costs under a populist government.

Carige’s failure to issue the bond on the market earlier this year meant it was in breach of regulatory requirements over its second-tier capital.

The conversion would have helped Carige beef up its core capital ratio, which stood at 10.8 percent at the end of September – above a minimum requirement of 9.63 percent set by the ECB but below the ECB’s suggested level of 11.18 percent.

Under the terms of the bond the bank’s supervisors have the power to decide its conversion into equity.

The reaction of depositors and investors after Christmas will be key for any regulatory decision on Carige. The bank suffered a large deposit flight a year ago when it almost failed to secure backing for its latest cash call.

On Friday, the ECB gave Carige until the end of 2019 to durably meet its requirements, urging the lender to complete the capital strengthening and actively seek a merger partner.

Carige, which lost 1.3 billion euros from 2014 to 2017 mainly due to bad loans, posted a 189 million euro loss for the first nine months after its new management booked 219 million euros in loan writedowns following an ECB audit.

(Reporting by Valentina Za; Editing by Adrian Croft and Kirsten Donovan)