Spain's Bankia eyes stake sales after record bailout

Sat May 26, 2012 11:02am EDT

A man shouts slogans during a protest outside headquarters of Spain's fourth largest bank Bankia in Madrid May 24, 2012. REUTERS/Sergio Perez

A man shouts slogans during a protest outside headquarters of Spain's fourth largest bank Bankia in Madrid May 24, 2012.

Credit: Reuters/Sergio Perez

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MADRID (Reuters) - Spain's fourth biggest lender, Bankia, on Saturday prepared to sell stakes it holds in companies to meet European competition rules after a state rescue that has so far cost 23.5 billion euros ($29.40 billion).

Bankia's parent company BFA asked for a higher-than-expected 19 billion euros in government help on Friday, in addition to 4.5 billion the state has already pumped in, to cover possible losses on repossessed property, loans and investments.

In Spain's biggest-ever bank rescue the state could end up with close to 90 percent of Bankia after it capitalizes the parent, BFA, then buys preferential shares in Bankia in October. Under Spanish law it should sell off Bankia in three years.

Bad loans at Spanish banks, which are rising in an economic downturn with 24.4 percent unemployment, are at the heart of worries that Spain could have to seek international aid and take the euro zone debt crisis into a dangerous new stage.

Among the newly recognized potential losses at Bankia and BFA are a 1.6 billion euros write down on corporate stakes including a 12 percent chunk of International Airlines Group and 5.3 percent of energy firm Iberdrola.

Bankia, which restated its 2011 accounts to reflect a 3 billion euros loss rather than the previously reported 300 million euros profit, said European Union regulators will sign off on the rescue plan in June.

"In the future logically it's in our plans, and also because of European requirements, we'll have to sell off stakes," Chairman Jose Ignacio Goirigolzarri told financial analysts.

EU competition regulators typically prefer bailed-out lenders to shed non-core operations, divest banking units where they have too dominant a position and halt dividend payouts and acquisitions until they have repaid the authorities.

Asked about fears of a run on deposits at Bankia, Goirigolzarri recognized that there was a "certain tension" in early May for a few days after the state takeover was announced. Bankia holds 10 percent of deposits in Spain's banking system.

But he said things had normalized and he expected deposits in June to be higher than they were at the end of last year.

AUDIT OF ENTIRE SYSTEM

The Bankia rescue is underway amid a broader audit of the Spanish banking sector, which has already raised worries more lenders will need help to cover deeper potential losses on property loans and souring consumer debt.

The banks were saddled with what the government estimates are 184 billion euros of unsellable repossessed property and sour loans after a decade-long building bubble burst in 2007-2008.

Spain's government will have to go to debt markets to raise the funds for Bankia at a time when its borrowing costs have jumped and it must pay a premium of almost 5 percentage points over German government debt.

A government source said that the Bankia rescue would affect both the public debt level and deficit.

"There's an expected loss in the asset portfolio that can be accounted for as debt, and there's an actual loss that would go to deficit but that is manageable," said the government source.

"At this time we're talking about hypotheticals and the impact won't be known until the valuations are done," he said.

Bankia has now recognized much higher losses than the government has forced Spain's banks to provision for, raising the question whether other banks will also have to identify even wider funding gaps.

The bank provisioned for 900 million euros in refinanced debt that could sour and now assumes that 8 percent to 10 percent of its mortgages will go bad. Spanish bankers typically argue that the bad mortgage rate can never go that high in Spain because it the law makes it difficult for people to walk away from their debt.

But Goirigolzarri said Bankia's situation was different.

"When you analyze Bankia's reality and the other entities we are talking about two different things, as far as the level of repossessed property, stakes in other companies and exposure to housing developers," he told banking analysts in a meeting that was transmitted live over the internet.

Spain's government, which is racing to reassure investors about the health of its banking system, had previously put the amount of state help needed to help lenders at 15 billion euros - a figure now largely surpassed by what Bankia alone will need.

Over three years Spain has restructured the banking sector four times without convincing investors that the clean-up was thorough enough, and is now hoping to draw a line under the banking problems without having to ask for EU help.

Regarding whether Bankia, which reduced capacity by about 20 percent last year, would need to shut more branches and lay-off more workers, Goirigolzarri said he was optimistic. "I'm confident about developing a solvent brand," he said.

Goirigolzarri said that he did not envisage that about 4 billion euros in preference shares held by investors would be converted into capital.

Bankia, born out of the merger of seven savings banks in 2010, was listed last July. After an aggressive campaign through its bank branches, many Spanish individuals bought shares, which have lost 57 percent of their value.

($1 = 0.7992 euros)

(Additional reporting by Andres Gonzalez, writing by Sarah White, editing by Fiona Ortiz and Keiron Henderson)

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Comments (9)
eurozoneexpat wrote:
It would be better if they was to give some hand outs to the people that have mortgages and loans with the Banks, let them pay the banks back & keep there homes. Instead of it being lost in the banks bottemless pit

May 26, 2012 9:35am EDT  --  Report as abuse
eurozoneexpat wrote:
It would be better if they was to give some hand outs to the people that have mortgages and loans with the Banks, let them pay the banks back & keep there homes. Instead of it being lost in the banks bottemless pit

May 26, 2012 9:35am EDT  --  Report as abuse
VonHell wrote:
Now Bankia is a gov bank we will see what happens…
The bank is full of bad assets from loans to the spanish housing bubble that increased by 25% the number of residences in Spain over the last few years…
It has assets turning bad in the form of overpriced shares of big white elefants spanish corporations taking losses…
And still lucrative assets in the form of almost broken spanish gov bonds that have high interest rate… and probably some of the money beeing used to bail out Bankia is borrowed by the spanish gov from the Bankia itself…
People’s deposits in form of cash must be a dream by now…
The only serious thing to do would be fire the bank’s president and the entire board set a ultra audition in the bank and probe criminal charges over management. Eliminate all shares from shareholders, so they would assume the losses caused by the management they put in place. The losses by loosing their shares probably would be small since the shares would be worth zero at the next trade day… Then one evolved society would seek to confiscate their property …
We hear a lot about shareholders “rights” and nothing about “responsibilities”. And when i open one account i dont see nothing written about my money going into subprime loans, overpriced shares and broken gov bonds and becoming just a number without meaning…

But when something serious was done in this crisis?…

May 26, 2012 10:57am EDT  --  Report as abuse
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