MILAN – Italian lender Banca Marche has been placed under special administration by the Bank of Italy, becoming the biggest casualty so far of an extended round of balance sheet inspections by the central bank.
Smaller lenders such as Marche are bearing the brunt of Italy's longest recession since World War II, with soaring bad debts stretching their finances, and analysts say some will need more investor capital or state aid.
Banca Marche, one of Italy's top 20 banks, said the Bank of Italy had effectively taken over management after it posted a net loss of 232 million euros ($305.9 million) in the first half due to big writedowns on its loan portfolio.
The lender, the target of an extensive audit by the central bank, said on Friday its Core Tier 1 ratio - a key measure of financial strength - had fallen to 4.29 percent at the end of June, making it one of the weakest in Italy.
Bigger rivals such as UniCredit , Intesa Sanpaolo , UBI and Banco Popolare have ratios of between 9.5 and 11 percent.
The bank had approved a 300 million euro share issue to be carried out by the end of this year, but said on Friday that neither its current shareholders nor new investors had made a binding commitment to take part in the cash call.
The lender had also tried to place a bond for up to 100 million euros with a hefty 12.5 percent coupon by the end of July. However, its Friday statement said the take-up for the bond so far was just 25 million euros.
The unlisted 312-branch lender said the Bank of Italy had temporarily suspended its board of directors and internal auditors from their functions and had appointed two special administrators who took office on Friday.
"The measure was taken also in view of the first-half results," said Banca Marche, in which Intesa Sanpaolo has a 5.8 percent stake.
It added that the special administrators would be tasked with putting in place the necessary steps to shore up the bank's weak capital base. The Bank of Italy took a similar measure for smaller peer Banca Popolare di Spoleto in February.
Banca Marche said writedowns on loans totalled 451.8 million euros in the first half, or 373 million more than in the same period of 2012. Problematic loans grew by 15 percent and accounted for 24 percent of total loans, it said.
The writedowns were 170 million euros higher than what the bank had forecast on August 1 and were the result of an "extraordinary review" of the bank's loan portfolio to meet the requests of the Bank of Italy, the lender said.
The Italian central bank, which has been carrying out an inspection of bad loans at 20 of the country's banks since last autumn, said at the end of July it had extended its checks to the entire loan portfolio of eight smaller lenders.
The closer scrutiny is meant to accelerate a clean-up of Italian banks' balance sheets before the European Central Bank takes over supervision of euro zone lenders in 2014.
Banca Marche's woes are likely to raise more questions over the role played by banking foundations - charitable entities with close ties to local politicians - in Italian banks after the scandal that engulfed Monte dei Paschi di Siena .
Banca Marche is controlled by three cash-strapped foundations which have a combined stake in the lender of 56 percent. It had already booked a net loss of 526 million euros in 2012.
($1 = 0.7584 euros)
(Editing by David Holmes and Tom Pfeiffer)