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New Generali CEO faces fundraising challenge

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MILAN (Reuters)—One of the most pressing tasks facing Mario Greco, picked on Saturday to lead Italy's biggest insurer Assicurazioni Generali, will be to figure out how to pay for a big stake in an eastern

European venture it may have to buy.

Generali's board succeeded on Saturday in ousting longstanding insider Giovanni Perissinotto after he lost the support of top shareholder Mediobanca and other Italian investors unhappy with the company's performance.

Mr. Greco, who resigned on Monday from his executive role at Zurich Insurance Group, will inherit an insurer weakened by its &euro46 billion ($57.2 billion) exposure to Italian government bonds and write-offs on some of its equities investments.

But once the dust of the boardroom battle settles, he will have to sort out how to gather the estimated &euro2.5 billion ($3.11 billion) to &euro3 billion ($3.73 billion) needed to buy the remaining 49 percent of a venture Generali has with PPF, controlled by Czech businessman Petr Kellner.

"(Generali) is ultimately likely to need to raise capital either through disposals or an equity raising to pay for the put option granted to PPF in relation to the central and eastern Europe joint venture," Credit Suisse said, referring to the option held by PPF to sell its stake in the venture to Generali.

Investment bank Mediobanca, which calls the shots at Generali even though it owns only 13% of the insurer, has long resisted any suggestion of a capital hike to avoid being forced to dilute its shareholding.

Now that funding conditions have further deteriorated due to the euro zone crisis, carrying out a capital increase may prove even more challenging, possibly pushing Europe's third-largest insurer to look at other options, such as asset sales.

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Some analysts also say the choice of the new CEO could herald a more fundamental turnaround plan, although the implementation of any new strategy is only expected to come after April 2013, when shareholders will elect a new board.

"The choice of an external manager with Mr. Greco's profile suggests cost cutting and management reorganization is under way," said Banca Akros.

"Meanwhile, the euro zone crisis will continue to weigh on the stock performance after possible initial market euphoria."

The put option granted to Mr. Kellner gives him the power to pull the trigger on the forced purchase by Generali.

The option is due in 2014 and PPF said in September an early sale of the remaining 49% stake of the venture was not on the agenda, rejecting media speculation.

"Perissinotto's management has always ruled out a capital increase. Resources could be generated via asset sales or through the sale of the joint venture with Petr Kellner," said Italian broker ICBPI. "It's all in the hands of Mario Greco."

Shares in Generali, which has lost 27% since the start of the year, were up 1.4% by 1140 GMT, outperforming a flat European insurers' index.

"The market does not believe in a possible capital hike, otherwise shares would be falling," a Milan-based trader said.

Generali has the option of addressing the PPF issue through the sale of assets which are not considered core.

It could, for instance, decide to sell Swiss-based private bank BSI, whose private banking business is not a good fit for its insurance model.

Or it may get rid of its 1% stake in Russian bank VTB , worth around $300 million at the time of purchase and criticized by some investors when Generali bought it last year.

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