ECB-appointed administrators step in to manage Italy's Banca Carige

By Giulio Piovaccari and Francesco Canepa

MILAN/FRANKFURT (Reuters) - The European Central Bank appointed three temporary administrators on Wednesday to take charge of Italy's Carige bank in an effort to save the struggling lender after it failed to raise new capital.

Italy's 10th largest bank failed last month to win shareholder backing for a 400 million euro ($459 million) share issue, part of a rescue plan financed by Italian lenders to shield the industry from the risk of another banking collapse.

The ECB stepped in after months of growing concern over the financial strength of Genoa-based Carige, the last major Italian bank considered to be a problem after the sector was hit by the financial crisis and Italy's weak economy.

The central bank acted after the majority of Carige's board, including Chairman Pietro Modiano and CEO Fabio Innocenzi, resigned over the failure to win approval for the cash call.

The ECB named Innocenzi and Modiano as temporary administrators, together with Raffaele Lener, an outside legal expert who has worked at both Italy's market regulator Consob and the Bank of Italy.

The administrators were "tasked with safeguarding the stability of (Carige)," the ECB said in a statement.

Their appointment would lead to the removal of Carige's management and control bodies, the ECB added.

Italy's market watchdog earlier suspended trading in Carige shares for a day on Wednesday after a request from the bank.

Shares in other Italian banks fell on the news, with Italy's banking index down 2.5 percent by 1120 GMT.

Carige said the administrators would continue working on measures to strengthen the bank's capital, shed non-performing loans and search for a possible merger partner.

One of their first tasks will be to hold talks with Italy's depositors' guarantee fund (FITD), which bought a Carige convertible bond for 320 million euros last year in a bid to help the bank meet the year-end deadline to boost capital.

The bond was meant to be reimbursed early this year after a successful share issue or otherwise convert into equity, which would make Italian banks the main shareholders of Carige.

The bank's top investor, the Malacalza family of steel entrepreneurs, blocked approval of the latest cash call at a Dec. 22 shareholder meeting, plunging the bank into a fresh crisis.

MERGER PARTNER

The European Central Bank, which directly supervises Carige, has told the bank to complete its capital strengthening plan and seek a merger with a stronger partner.

To stay afloat in recent years Carige has sold off its best assets, such as its insurance units, and so would struggle to attract a merger partner as recommended by the ECB.

The Malacalza family holds 27.6 percent of Carige after investing more than 400 million euros for a stake worth 20 million euros at current market prices.

Explaining their decision to block a new capital increase, the Malacalzas said they first wanted more clarity on the bank's future business plan and possible merger options as well as any further requests from the regulator.

One source familiar with the matter said the administrators were tasked with trying to convene another shareholder meeting to seek approval for the cash call, but doubts remain over how the Malacalzas can be persuaded to change their stance.

A spokesman for the family was not immediately available for comment.

Italy bailed out Monte dei Paschi di Siena in 2016 and bankrolled the rescue of two smaller lenders based in the Veneto region by Intesa Sanpaolo in 2017.

If the latest share issue fails to win shareholder approval, the lender may need to be liquidated with taxpayer money, as happened with the Veneto-based banks.

Carige has raised 2.2 billion euros from investors in three cash calls since 2014, piling up 1.5 billion euros in losses over the same period, mainly due to bad loans.

Carige's troubles stem from decades of mismanagement and too much exposure to the depressed local economy. It has also undergone a string of top management shake-ups since the Malacalzas replaced a local charitable foundation as the single largest shareholder in the bank.

($1 = 0.8711 euros)

(Reporting by Giulio Piovaccari in Milan and Francesco Canepa in Frankfurt; Writing by Agnieszka Flak; Editing by Jan Harvey and Adrian Croft)