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Spain plans for bail-out of major bank
By Catholic Online (NEWS CONSORTIUM)
May 8th, 2012
Catholic Online (www.catholic.org)
May 8th, 2012
Catholic Online (www.catholic.org)
The ailing Spanish bank of Bankia is expected to be bailed out by the
Spanish government. The move will involve the injection of billions of
euros in order to save the bank from insolvency. The move marks a
drastic reversal of policy for Spain, which had previously insisted that
no additional state money would be needed to clean up the country's
banking sector.
Spanish Prime Minister Mariano Rajoy said in a radio interview that the government would consider injecting state funds into the banking sector if needed.
"If it was necessary to reactivate credit, to save the Spanish financial system, I would not rule out injecting public funds, like all European countries have done," Rajoy said.
The bursting of Spain's property bubble has seen the level of bad loans as a proportion of total lending rise to the highest level in 18 years, leaving banks managing vast portfolios of repossessed and unsold real estate. The banks have also been denying credit to an economy that is suffering its second recession in three years.
According to one economy ministry source, the Spanish government can deploy the state-backed Frob bank restructuring fund to pump capital into Bankia and is considering the use of contingent convertible bonds, known as cocos.
The official would not say how much money would be needed, but Spanish press reports indicated that Bankia could receive €7 billion -- €10 billion of additional capital.
Rato, a former finance minister who was placed in charge of Bankia in spite of having little experience as a commercial banker, announced that he had proposed José Ignacio Goirigolzarri, former chief executive of rival BBVA, as his successor.
Goirigolzarri was recommended after consultation with the Spanish government, one person close to Bankia said.
The IMF singled out Bankia last month as the largest risk to the stability of the Spanish banking sector. The fund recommended that Bankia and other banks take "swift and decisive measures to strengthen their balance sheets and improve management and governance practices."
Part of the bank was listed on the Madrid stock market last year, raising €3.3 billion from private savers and Spanish institutions, a move criticized by many analysts and investors for failing to recapitalize Bankia sufficiently.
Two of Bankia's constituent cajas, Caja Madrid and the Valencian Bancaja, have historically had strong ties to the ruling center right Popular party of Rajoy.
Bankia shares, which slid 3 per cent on the news to €2.38, have fallen 36.5 per cent since their listing last summer.
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