December 22, 2018 / 4:28 PM / in a month

Top shareholder in Banca Carige blocks crucial cash call

GENOA, Italy (Reuters) - The top investor in Banca Carige (CRGI.MI) on Saturday blocked a crucial cash call at the troubled Italian bank from being approved because it wanted more clarity on the lender’s future before backing a new capital injection.

The 400 million euro ($455 million) stock issue was part of a rescue plan financed by Italy’s lenders to stave off a crisis that would have hit the industry at a time of already intense market pressure.

A representative for Carige’s top investor Malacalza Investimenti, the holding company of local businessman Vittorio Malacalza, told shareholders that it did not oppose in principle a further cash call at Carige, but wanted to have more details on the bank’s new business plan and merger options first.

“Malacalza has invested more than 400 million euros for a stake that is worth very little,” the representative said.

“...We don’t doubt your good faith but there are missing elements.”

During a dramatic meeting, the Malacalza family ignored pleas from the bank’s top executives to change their mind over the cash call.

The rejection casts a new shadow over Italy’s banking sector, which is wrestling with rising funding costs and a hit to capital buffers due to the shrinking value of lenders’ Italian bond portfolios after a populist government drove away foreign investors.

Carige has fallen behind in the restructuring process which has seen peers clean up their balance sheets in recent years.

Heavily exposed to the suffering local economy and plagued by governance problems, the Genoa-based bank lost 1.3 billion euros from 2014 to 2017, mainly due to bad loans.

It raised 2.2 billion euros from investors over the same period in three successive cash calls. The bank was worth 90 million euros at Friday’s market price.

The latest stock issue was meant to allow Carige to repay in shares a costly subordinated loan that Italian lenders subscribed to last month to help replenish Carige’s second-tier capital buffers.

Carige had failed to sell the bond on the market due to the excessive returns demanded by investors. The bond’s 13 percent coupon rises to 16 percent now that Carige failed to approve the stock issue needed to convert the bond into equity.

CEO Fabio Innocenzi told shareholders that the stepped-up coupon would cost the bank 51 million euros a year in interest payments.

The European Central Bank on Friday had given Carige until the end of 2019 to durably meet its capital requirements, urging the lender to complete the capital strengthening and actively seek a merger partner, while continuing to shed bad debts and other non-core assets.

Malacalza has built a 27.6 percent stake in Carige since running to its rescue back in 2014. In September Malacalza pushed out a third CEO in as many years in an attempt to solve a governance crisis which had drawn complaints from the ECB.

“Malacalza Investimenti has confidence in this board ... but this is a transaction which would require us to invest... more than 100 million euros...to avoid a strong dilution of our stake,” the representative said.

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

($1 = 0.8797 euros)

Reporting by Andrea Mandala, writing by Valentina Za, editing by John Stonestreet

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