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Banca Carige to get €320M bailout from Italian interbank fund

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Banca Carige to get €320M bailout from Italian interbank fund

Banca Carige SpA will receive a €320 million bailout from Italy's interbank deposit protection fund in order to plug a capital hole, CEO Fabio Innocenzi told analysts during a call for the bank's third-quarter earnings.

The bank has been racing to find a solution to its capital shortfall ahead of a Nov. 30 deadline set by the European Central Bank. Banca Carige had been asked to come up with a detailed plan showing the ECB how it will rebuild its Tier 2 capital. In October the bank's board had said that it would consider options including a possible merger and the issuance of a Tier 2 bond. Analysts expressed concern at the time about a potential bond issues' chances of success given the volatility in Italian financial markets.

Carige has been doing "intense work" in the past few months to give the ECB an "exhaustive answer" to its concerns about its capital hole, Innocenzi said.

Carige now plans to issue a €400 million bond, of which the interbank deposit protection fund will buy €320 million, with private investors, most likely existing shareholders, buying up the remaining €80 million.

Bonds would be "difficult" to place with non-shareholders, Innocenzi said.

Debt-equity conversion

The bonds will all be converted to equity at an unspecified later date via a €400 million capital increase, according to a company presentation.

Carige has yet to decide a trigger point in terms of its share price at which the bonds would convert into equity, but will most likely take a decision about this in February or March next year, Innocenzi said.

The bank suspended share transactions on the morning of Nov. 12 ahead of the company's results announcement in order to prevent "speculative trading including in the wake of rumors circulating in the media."

Carige reported a pre-tax loss of €227.6 million for the first nine months of 2018, compared with a €328.8 million loss for the same period in 2017.

The bank's common equity Tier 1 ratio at the end of the first nine months of 2018 stood at 10.8%, down from 12.4% at the end of the 2017 full year.

Carige is contending with a heavy burden of soured loans, with the gross non-performing exposure ratio standing at 27.5% at the end of the first nine months of the year compared to 27% at the end of the 2017 full year.

The bank plans on a "forceful" cleanup of its loan book in 2019, Innocenzi said.