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Exclusive: Europe's bank supervisors want Carige closed if no buyer found - sources

Exclusive: Europe's bank supervisors want Carige closed if no buyer found - sources
FILE PHOTO: The logo of Carige bank is seen in Rome, Italy, April 9 2016. REUTERS/Alessandro Bianchi/File Photo -
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Alessandro Bianchi(Reuters)
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By Francesco Canepa and Balazs Koranyi

FRANKFURT (Reuters) – European bank supervisors think Italy’s long-struggling Banca Carige should be closed if it can’t find a buyer, contrary to Rome’s plan for a state rescue, four sources close to the matter said.

Carige’s case, the latest in a series of bank crises in an Italian economy still reeling from the last recession, is likely to once again pit Rome’s anti-establishment government against the European Central Bank in Frankfurt after skirmishes on the euro.

The sources said supervisors had no immediate plan to pull the plug on Carige and still hope the bank, which has been marred by years of maladministration and a stagnant economy in its domestic region of Liguria, can find an investor.

But the watchdogs see a liquidation of the bank as the logical next step if no saviour materialises, according to the sources. They did not lay out any specific timeframe for how long supervisors were prepared to wait for a buyer to emerge, though one source said they were not prepared to wait months.

An ECB spokeswoman said: “This is speculation. ECB Banking Supervision is fully relying on the temporary administrators to pursue their efforts to find a private solution.“ 

Italy, which has the second largest public debt in the euro zone after Greece, has spent 20 billion euros to prop up its ailing banks since 2017. While Carige is not big enough to pose a threat to the country’s financial stability, its woes highlight the persistence of trouble spots in the banking industry more than a decade on from the global financial crisis.

Winding down Carige would allow the government to take on the bank’s bad assets while carving out the good ones for a rival to pick up on the cheap – as happened to two banks in the Veneto region in 2017.

However this would be an embarrassment for Italy’s ruling coalition of the anti-establishment Five-Star Movement and the right-wing League. The parties, who attacked the country’s previous administration over its handling of banking crises, have so far resisted the option and instead raised the prospect of a capital injection by the state.

But the sources said Carige was likely too small to qualify for such a “precautionary recapitalisation”, which requires approval from the ECB and the European Commission.

One of sources said Carige was not viable as a standalone business in the long run. Two other sources said a liquidation was the best option for Carige in light of the successful precedent in Veneto and the Genoa-based bank’s relatively small size and limited geographic footprint.

An Italian Treasury spokeswoman rejected the view that Carige may not be viable and that as such a precautionary recapitalisation would not be possible.

Carige declined to comment.

CAPITALHOLE

The euro zone’s top 117 banks are overseen by the Single Supervisory Mechanism, which includes the ECB and national watchdogs from the area’s 19 countries.

While the supervisors can’t force Carige to close, they can block a state capital injection and deem the bank to be failing, which could start the process of it being wound down.

Carige is one of several smaller banks struggling with bad loans and resistant to consolidation in Italy, the euro zone’s third-biggest economy.

Its biggest investor – the Malacalza family of steel entrepreneurs – voted against a capital increase last year, leading the ECB to place the bank under special administration in January.

Since then the Genoa-based bank has failed to fill a 630-million euro (£555 million) capital hole, most recently missing a mid-May deadline set by the ECB after U.S. fund giant BlackRock walked away from a planned rescue bid, deeming it too risky.

The bank’s ECB-appointed administrators say they’re still looking for a private investor while the government has already paved the ground for a precautionary recapitalisation with 1 billion euros of taxpayer money.

Bankers say Carige has some attractive assets, including up to 700 million euros of potential tax credits stemming from past losses that a bigger buyer could take advantage of, 12 billion euros worth of customer deposits and a private banking business.

But the bank has little subordinated debt outstanding after swapping it for senior notes at steep losses for investors in late 2017.

In 2016, Italy’s government of the time recapitalised the country’s third-largest lender, Monte dei Paschi di Siena but that failed to draw a line under the Tuscan bank’s woes.

The following year the government paid 5.2 billion euros to Intesa Sanpaolo, Italy’s top retail bank, for buying the two Veneto banks, while taking on their bad assets and imposing losses on junior bondholders.

(Additional reporting by Andrea Mandala and Silvia Aloisi in Milan, and Giuseppe Fonte and Stefano Bernabei in Rome; Editing by Pravin Char)

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