European banking authority placed banca carige in receivership, resolution could cost italy dearly
Just 18 months ago, italy went to the rescue – against resolution guidelines – of crash bank monte dei paschi di siena (msr). After the country’s third-largest bank, banca carige, the country’s tenth-largest bank, is now in serious trouble and has been placed in receivership by the european central bank (ecb).
This is not surprising, since even in the unstressful bank stress tests, in which no bank can actually fail, carige has recently been identified as a "failing" noticed. That’s something, since previously the stress tests had not even reported banks as failing, which were rescued shortly afterwards with billions in taxpayers’ money.
By means of forced administration, the banking supervisory authority, which is located in the ecb, wants to ensure the stability of the bank. The aim is to ensure that the capital requirements are met again. After the results of the stress test, the capital was supposed to be increased. In october, the bank’s board of directors voted unanimously in favor of a new financial plan that provided for a capital increase of at least another half a billion euros. Since 2014, carige had already increased capital by 2.2 billion euros. However, it still does not get out of the loss zone. In the last four years, carige has made a loss of about 1.5 billion euros, mainly due to the large number of bad loans in its books.
However, the capital increase recently failed due to the resistance of the major shareholder vittorio malacalza. The malacalza family holds 27.5% of the shares in the bank. The iance of subordinated bonds in the amount of 320 to 400 million euros was also blocked. As a result, the entire management of the financial institution resigned. The ecb appointed three interim administrators and a supervisory committee to run the bank on an interim basis.
In fact, the ecb does not supervise a relatively small bank with a balance sheet total of only 24 billion euros. But they are keeping a special eye on the troubled italian banks, which can be seen as a preparation for a new crash. The initial tsunami could come from italy, the third-largest eurozone country, because italian banks alone account for almost a quarter of the total volume of bad loans of almost 660 billion euros in europe. They are therefore still particularly vulnerable.
They also continue to suffer from the ecb’s zero interest rate policy. However, the italian financial institutions have recently been affected by the unspeakable debate on italy’s draft budget. This was followed by price losses on the stock exchanges – and this is having an impact on capital resources.
The interim administrators pietro modiano, fabio innocenzi and raffaele lener are now to strengthen carige’s capital base and look for partners for a merger. According to rumors, unicredit of milan is also being traded as a possible buyer for the crash bank. However, unicredit itself has repeatedly attracted attention for its high losses, because it also had to shoulder many bad loans. Most recently, unicredit was again conspicuous for losses in the turkey crisis.
In the meantime, there are also reports that it has become expensive for italian banks if, for once, a bank like carige is wound up. The italian deposit insurance fund (fitd) then had to answer for savings accounts of up to 9.4 billion euros, reports the reuters news agency with reference to an insider.