CRG Banca Carige SpA

MILAN—U.S. investor Apollo Management LLP on Tuesday offered to buy a controlling stake in troubled Italian lender Banca Carige S.p.A by purchasing a 500 million euro ($560 million) share issue.

If accepted, the offer, under which Apollo would also take on the Italian bank's portfolio of bad loans, would give the U.S. fund control of Banca Carige.

Apollo also offered to guarantee an additional 50 million euro option reserved for existing shareholders, by buying any unsold shares, Banca Carige said.

As part of the transaction, Apollo would pay 695 million euros for a bad loans portfolio with a face value of 3.5 billion euros, according to a person familiar with the matter. Carige says Apollo's offer to buy new shares would "compensate the effects" of the bad loans sale.

Apollo's bid represents a turning point in Carige's struggle to restore its financial health after the bank emerged as one of Europe's worst-capitalized lenders toward the end of 2014. The bank has struggled since, with large piles of bad loans and low levels of capital.

According to the person, the European Central Bank has pressed Carige to take Apollo's offer seriously, as the eurozone watchdog renews pressure on weaker Italian lenders.

The ECB declined to comment.

Markets have battered local banks since the beginning of the year amid widespread concerns about the European banking sector's financial health. Italian banks lost 30% of their value since the beginning of January, compared with a loss of roughly 20% for European lenders. Carige's shares are up 5.2% on Tuesday.

Apollo couldn't immediately be reached for comment. Carige was not immediately reachable to comment on the amount offered for bad loans.

Carige's recapitalization would be the first step toward rectifying the capital issues of a group of large Italian banks, including Banco Popolare di Vicenza S.p.A. and Veneto Banca S.p.A., both are set to launch cash calls after the ECB found them short of capital.

The ECB earlier this year asked to see evidence from Carige of new funding and strategic plans to shore up the bank's finances and meet supervisory requirements.

Following the ECB's request, Carige updated its net loss for 2015 at 102 million euros from a net loss of 45 million euros it had disclosed in February. The bigger loss was a result of a 57 million euros write-down on the value of past acquisitions, or so-called goodwill.

At the time, the bank responded to the ECB's requests by saying it had enough capital, despite the goodwill write-down.

Since 2014, Carige has tapped investors for 850 million euros and sold assets to strengthen its finances, but still struggled to regain profitability and retain client and investor confidence. Among the assets shed, the bank sold two insurance businesses to Apollo for â,¬310 million.

Carige said earlier this month it had adequate liquidity to face current and future risks, although it had lost deposits last year and in the past two months.

Apollo's proposal revises an initial offer the fund made in February, Carige said Tuesday. The fund had offered to buy 525 million euros in new shares, and to guarantee an additional 100 million euro share sale offered in option to the bank's shareholders by buying any unsold shares.

Carige added that its new board, which is set to be elected by a shareholders' assembly Thursday, will assess Apollo's proposal.

The Genoa-based bank is advised by Mediobanca Banca S.p.A. and J.P. Morgan Chase & Co.

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

(END) Dow Jones Newswires

March 29, 2016 09:45 ET (13:45 GMT)

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