Carige bets on cash call, debt swap in turnaround effort

MILAN (Reuters) - Italy’s Banca Carige will cut around 1,000 jobs, almost twice as many as previously envisaged, and try to raise 1 billion euros ($1.2 billion) under a new plan to revive its fortunes.

Genoa-based Carige has come to the fore as the last remaining large Italian lender in difficulty after the Rome government rescued Monte dei Paschi di Siena and liquidated two regional banks this year.

Grappling like rivals with a soured debt pile left behind by a long recession, Carige must shed bad loans and boost capital to comply with European Central Bank’s demands.

Chief Financial Officer Andrea Soro said he was confident the ECB would approve this month Carige’s plans to raise up to 560 million euros in a new share issue and a launch a debt conversion offer which, together with asset sales, should yield another 400 million euros.

“We believe our targets are achievable, albeit challenging,” he said.

Carige will offer holders of 510 million euros in subordinated bonds the chance to swap them into senior debt at a discount, booking a capital gain. Soro said the terms of the offer, including the coupon on the new debt, would be studied to maximize its chances of success.

A Milan bond trader said the most liquid of the bonds targeted by the swap, maturing in December 2020, had dropped sharply in price on Wednesday hit by uncertainty.

“Our plan (to relaunch the bank) has several legs and they must all work out for it to succeed,” Chief Executive Paolo Fiorentino said.

Fiorentino took over as CEO in June after his predecessor lost the confidence of the bank’s top shareholder Vittorio Malacalza having been in the job little more than a year.

Carige will use the fresh cash to further write down bad loans as it strives to lower impaired debts to 3.4 billion euros next year from 7.3 billion euros at the end of 2016.

“Most of the 1 billion euros in fresh capital will be used to clean up the balance sheet this year and the next,” the CFO said, pointing to loan writedowns and costs to lay off people.

Carige plans to cut one fifth of its staff and branches by the end of 2020, nearly doubling proposed redundancies compared to a previous business plan presented in February.

Italy’s ninth-largest bank expects a profit of 25 million euros next year, after losses for 1.1 billion euros between 2014 and mid-2017.

Cuts and a business model revamp should help it improve its return on tangible equity, a measure of profitability, to 6.5 pct in 2020 from minus 12.2 pct in 2016, the company says.($1 = 0.8416 euros)

Editing by Jon Boyle