Italy government to provide guarantees for Carige bonds: sources

FILE PHOTO: The logo of Carige bank is seen in Rome
FILE PHOTO: The logo of Carige bank is seen in Rome, Italy, April 9 2016. REUTERS/Alessandro Bianchi/File Photo

January 7, 2019

By Stefano Bernabei, Valentina Za and Giuseppe Fonte

ROME/MILAN (Reuters) – Italy’s government is set to approve a decree to provide state guarantees for bonds issued by Banca Carige <CRGI.MI> after administrators at the troubled bank held a series of meetings earlier on Monday on the lender’s rescue, sources told Reuters.

The sources said the cabinet was scheduled to meet at 9.00 p.m. (2000 GMT) on Monday to sign off on the legislation.

The European Central Bank (ECB) last week selected three commissioners to try to save the Genoa-based bank after the Malacalza family, Carige’s biggest stakeholder, blocked a share issue that was part of an industry-financed scheme to stave off a collapse.

Italy’s FITD depositors protection fund bought a 320 million euro ($366 million) hybrid bond late last year to help Carige to reach a required total capital threshold.

Carige, however, failed to gain shareholder backing for an up to 400 million euro new share issue that would have been guaranteed by the bond’s conversion into equity.

Earlier on Monday the administrators met Treasury Minister Giovanni Tria before going on to meet top managers at FITD but no details of what was discussed were released.

A person familiar with the matter said the meeting with FITD would broach the possibility of lowering the bond’s interest payments.

Carige was not immediately available for a comment.

COUPON RAISED

Carige’s failure to approve the capital increase triggered a stepping up of the coupon to 16 percent from 13 percent. That represents 51 million euros in annual interest, further stretching the loss-making bank’s finances.

Maccarone said a reduction in the coupon would require a complex approval process and is unlikely.

The fund’s contributors are other Italian lenders that came to Carige’s rescue when the sector is under pressure from slowing economic growth and rising borrowing costs under the country’s Eurosceptic government.

Carige or supervisory authorities can decide to convert the bond into equity if the bank’s core capital falls below minimum requirements, a document on Carige website shows.

The bank’s capital ratio stood at 10.8 percent at the end of September – above an ECB minimum threshold of 9.63 percent, though the ECB will soon set a new threshold for Carige for 2019.

Raffaele Lener, one of the three commissioners running Carige, said in a newspaper interview published on Monday that the bank had to negotiate “a different solution” with the fund given the current situation with the bond.

The UILCA union threatened a strike if commissioners failed to provide “answers and commitments” at a meeting on Tuesday.

“We won’t accept empty promises. We don’t rule out a strike and a protest in Rome … if a solution is not found,” UILCA head Massimo Masi said in a statement.

MERGER HOPES?

Lener also told la Repubblica’s Affari&Finanza supplement that the bank would need to seek approval from market watchdog Consob for a resumption in trading of Carige shares and bonds, which are currently suspended.

He said the suspension was an issue for the bank’s image and liquidity but a capital increase may not be necessary if the bank can quickly find a merger partner or manage to overhaul its business.

The ECB has told Carige to consider a merger with a stronger peer.

However, bankers say that Carige, which has sold off its best assets in recent years, is overly exposed to the depressed local economy and has little appeal for potential buyers.

In a move that could help with a potential sale, state-owned bad debt firm SGA has had preliminary contact with Carige to buy the bank’s impaired loans, a source familiar with the matter has told Reuters.

“It could be a solution … that has advantages for everyone,” Lener said in his newspaper interview.

(Additional reporting by Giulio Piovaccari and Andrea Mandala, writing by Stephen Jewkes. Editing by Keith Weir, David Goodman and David Evans)

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