November 12, 2018 / 8:19 AM / 6 months ago

Italian banks come to Carige's aid in $450 million capital plan

(Reuters) - Italy’s Banca Carige (CRGI.MI) confirmed on Monday it will get up to 400 million euros ($451 million) from the country’s biggest banks and private investors to meet a European Central Bank year-end deadline to boost its capital.

FILE PHOTO: The Carige bank logo is seen in Rome, Italy, April 16, 2016. REUTERS/Stefano Rellandini/File Photo

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-austerity populist coalition government formed in mid-May.

Carige, which has fallen behind in the clean-up that has seen rivals shed bad debts, said in a statement that it would issue a subordinated convertible bond for between 320 million and 400 million euros.

Italy’s banking sector, which was just emerging from years of restructuring following a deep recession, is now wrestling with shrinking capital buffers and soaring funding costs.

Carige said Italian banks had guaranteed they would buy bonds worth 320 million euros, with a further 80 million euros earmarked for private investors, possibly including existing shareholders.

The Genoa-based bank, which is heavily exposed to the economy of the northwestern Liguria region, has twice this year failed to issue subordinated debt due to the high yields demanded by investors.

Its debt was downgraded to ‘CCC+’ by Fitch Ratings last month and the ECB has given it until Nov. 30 to detail how it will fill its capital gap.

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 to avoid falling foul of European state aid rules.

A deep recession in Italy and a global slump in the shipping industry have hit 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.

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 CEO.

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.

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

$1 = 0.8868 euros

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