July 22, 2018 / 5:08 PM / 3 months ago

UPDATE 1-Italy's Carige says must lift capital quickly or seek merger

* Last bank in need of fixing among large Italian lenders

* Top shareholder strongly critical of CEO’s actions

* ECB says malfunctioning governance creates risks (Recasts adding details)

By Valentina Za

MILAN, July 22 (Reuters) - Troubled Italian lender Banca Carige said on Sunday the European Central Bank had given it until the end of the year to meet a minimum capital threshold unless it embarked a merger.

Carige, Italy’s last remaining large problem bank, is facing a management crisis after its chairman, deputy chairman and two board members resigned in disagreement over the leadership of Chief Executive Paolo Fiorentino.

Fiorentino, a veteran UniCredit executive, is overseeing a balance-sheet clean-up demanded by the ECB and in December managed to pull off a capital increase needed to keep Carige in business.

But its failure this year to issue a hybrid bond that would have boosted its lower-quality capital means Carige’s total capital ratio of 12.2 percent lags a 13.1 percent threshold set by the ECB.

Carige said the ECB had rejected the bank’s latest capital plan and had asked for new measures by Nov. 30 that would allow the lender to comply with mandatory capital levels by Dec. 30.

The ECB could push back that deadline, “if a merger were pursued to ensure that capital requirements are met on a sustainable basis,” the bank said, quoting a letter received on Friday from the regulator.

Heavily exposed to the local economy of the northwestern Liguria region, Carige has long been seen in need of a tie-up, especially after it used asset sales to lure investors into its December share issue.

Investment bankers however say shareholder infighting complicates the search for a partner.

The top investor is local businessman Vittorio Malacalza, who built a 20.6 percent stake by backing the bank’s three successive cash calls since 2014.

On his arrival, Malacalza hired a new CEO only to then fall out with him and bring in Fiorentino, who has now also come under fire.

Fiorentino has the backing of another leading investor, Raffaele Mincione, who wants to appoint a new board and steer Carige towards a merger.

A source familiar with the situation said Carige would kick off the process of seeking a tie-up at an Aug. 3 board meeting.

The board will also set the date of a shareholder meeting to name a new chairman, as requested by the ECB, Carige said.

The bank said the regulator saw its malfunctioning governance as a “concrete risk” for its reputation and operations.

“In the current situation, the ECB believes a strong leadership is particularly important to overcome differences and secure board backing for the necessary strategic decisions,” it said. (Reporting by Valentina Za Editing by David Goodman and Andrew Heavens)

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