CRG Banca Carige SpA

MILAN—Italian banking shares are suffering heavy losses Friday after the European Central Bank demanded that troubled lender Banca Carige SpA present new funding and strategic plans to shore up its finances and meet supervisory requirements.

Banca Carige shares plunged 10%, dragging down other lenders such as UBI Banca SpA and Banco Popolare SC, which were briefly suspended in early trading after accumulating losses of more than 4%. The FTSE Italia All-Share Banks closed down 2%, while Milan's FTSE MIB ended 0.4% lower.

"The Carige episode is rekindling concerns about Italian banks," said Vincenzo Longo, a Milan-based strategist at IG Markets.

The ECB's decision underscores renewed pressure on weaker Italian lenders by the eurozone watchdog, as markets have battered local banks since the beginning of the year amid widespread concerns about the European banking sector's financial health.

Italian banking shares lost more than a fourth of their value in the first two months of the year, while European lenders shed 15%.

In recent weeks, Italian banks pared some of the losses accumulated in the first weeks of the year, which several analysts deemed unjustified by their economic fundamentals despite the roughly €345 billion ($375.75 billion) of bad loans on their balance sheets and low profitability.

Traders say the market reaction to the ECB's Carige request shows how investors are still very susceptible to any indication of issues at Italian banks.

Following the ECB's request, which it disclosed late Thursday, Carige restated its net loss for 2015 at €102 million from a net loss of €45 million it disclosed in February. The bigger loss is caused by a €57 million write-down on the value of past acquisitions, or so-called goodwill.

The bank responded to the ECB's requests by saying it has enough capital, despite the goodwill write-down. The Genoa-based bank emerged as one of the worst capitalized in Europe during the 2014 Europe-wide health check of lenders.

Since then, it tapped investors for €850 million and sold assets to strengthen its finances, but has struggled to regain profitability and retain clients' and investors' confidence.

It also said it has adequate liquidity to face current and future risks, although it lost deposits last year and in the past two months.

Carige has until the end the month to present a new funding plan and until the end of May to present a new strategic plan to reflect a worsening economic backdrop.

The ECB also weighed in on Banca Popolare di Vicenza SC's troubles, by sending a letter in February warning the bank it could be resolved if it doesn't implement its plan to become a listed company and raise €1.8 billion of fresh capital.

Shareholders—most of whom have seen the value of the bank's shares plummet as much as 90%--will vote on the plan on Saturday.

People familiar with the bank's management thinking say executives are confident the plan will go through and, in particular, that capital raising will be successful, as it is guaranteed by a pool of investment banks which will buy any unsold share.

The bank has been struggling with large piles of bad loans and low levels of capital after it failed the 2014 ECB health check.

Write to Giovanni Legorano at giovanni.legorano@wsj.com

(END) Dow Jones Newswires

March 04, 2016 12:35 ET (17:35 GMT)

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