May 9, 2019 / 11:16 AM / 11 days ago

Breakingviews - BlackRock’s Italian U-turn leaves state on hook

The Carige bank logo is seen in Rome, Italy, April 16, 2016. REUTERS/Stefano Rellandini

LONDON (Reuters Breakingviews) - BlackRock’s U-turn on a daring Italian bank rescue puts Rome back on the hook. The world’s biggest asset manager on Thursday confirmed it had dropped plans to join a 720 million euro rescue for ailing bank Carige. The abrupt decision after months of discussions is a belated admission the project was too risky. That is bad news for Italy’s taxpayers.

A special situations fund managed by BlackRock had been planning to inject cash into loss-making Carige along with a solidarity fund owned by Italian banks and other investors. Though the rescue of Italy’s last midsized problem lender had not been finalised, it was at an advanced stage. The solidarity fund officially endorsed it on Monday by pledging to convert hybrid bonds worth 313 million euros into Carige shares. The participants were due to present the plan to the European Central Bank next week. Given the deal’s high political profile, it’s surprising that the asset manager run by Larry Fink waited so long before walking away.

The plan always looked overly ambitious, though. According to Il Messaggero, BlackRock expected Carige to break even in 2020 and deliver net income of 160 million euros by 2023 – earning an 8 percent return on equity of 1.9 billion euros. That’s double the 4 percent average return produced by Italian banks in 2018, BLN data show. Turning around the weakened Carige brand in Italy’s stagnating economy was a tall order.

BlackRock’s change of heart removes the last market-based option for fixing Carige. The group run by former UBS banker Fabio Innocenzi was put under direct ECB control in January after failing to raise enough cash to absorb loan losses. Another potential investor, U.S. fund Varde Partners, walked away earlier this year after balking at the poor quality of the bank’s assets, according to a person familiar with the situation. Italian banks have stayed on the sidelines, hoping the state would pay them to ride to the rescue, as when Intesa Sanpaolo snapped up two failed Veneto-based lenders in 2017.

The buck is now likely to stop with the Italian government, which has pledged to inject up to 1 billion euros into Carige to calm nervous depositors. As with other failed Italian banks, taxpayers might have to pick up the tab.

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