World Economy

One More Italian Bank in Market Manipulation Probe

ECB has told Banca Carige to boost  capital and consider merger.ECB has told Banca Carige to boost  capital and consider merger.

Prosecutors in the Italian city Genoa are investigating possible market manipulation in relation to Banca Carige, the lender hit by a boardroom row, a source with direct knowledge of the matter said on Tuesday.

News of the investigation, which does not target any specific person, was first reported by Italian newspapers La Stampa and Il Fatto Quotidiano, Reuters reported.

Carige said in a note it had handed over to prosecutors the minutes of all shareholder and board meetings for 2017 and 2018, as well as letters exchanged with the European Central Bank. “The bank reiterates it is fully cooperating with authorities,” Carige said.

Carige’s chairman, deputy chairman and two board members have resigned in recent weeks in disagreement over Chief Executive Paolo Fiorentino’s management of the bank. The top shareholder asked on Monday to remove Carige’s board.

The Italian lender is in the spotlight after the European Central Bank demanded Banca Carige to see new capital plans as it tries to overcome a management crisis.

The bank said on Sunday that the ECB has requested to see how the bank will meet minimum capital thresholds amid an ongoing management crisis. The ECB has also said that such capital plans can be submitted later, if the lender decides to merge with another institution.

This crisis adds up to the pile of problems in the Italian banking system, where crisis-legacy issues remain, with one of the biggest problems being a build-up of non-performing loans.

Veneto Banca, Banca Popolare di Vicenza and Monte dei Paschi have all made headlines in the last year for requiring help from the Italian government to avoid a wider collapse. The former two received a cash buffer of €4.8 billion ($5.63 billion) and state guarantees of €12 billion; whereas the latter received a cash injection of up to €6.6 billion.

Analysts argue that the several attempts to rescue Italian banks show that the mechanisms used to prop-up banking institutions, like those in Italy, are not sufficient–and could ultimately put the entire European system at risk.

The various legacy issues, such as bad loans, are not solely an Italian problem. Across Europe, banks have had to work on their structural problems. However, there is one clear area that still demands action–profitability.

“The problem for European banks is profitability and the difficulty for a lot of them is with interest rates where they are, it is still a challenge for them to get profitability back up,” Daragh Quinn, senior Vice president of European banks equity research at Keefe, Bruyette & Woods, told CNBC.

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