Spain's Bankia may get less aid than sought-sources

Tue Jun 5, 2012 4:29pm EDT

MADRID, June 5 (Reuters) - Bankia, Spain's fourth-largest bank, could get less than the 19 billion euros (US $23.68 billion) in aid it has asked for, two sources said on Tuesday, prolonging uncertainty surrounding a rescue that has added to fears that Spain itself would need a bailout.

The 19 billion euros would be on top of about 4.5 billion euros Madrid has already put into the bank.

Spain's government is in the process of nationalizing the bank, which has struggled under the weight of souring real estate assets after a property bubble that burst four years ago. But the amount needed for the rescue may have been overestimated and Bankia may end up getting less bailout money, the sources said, adding that the final figure would only emerge after a series of other audits.

Bankia's management said on May 25 in a stock exchange announcement that the bank needed 19 billion euros, and it offered a timeline for recapitalization that would be coordinated with the Bank of Spain and the government. On Tuesday, one of the sources said that amount would have to be approved by the Spanish rescue fund FROB and the Bank of Spain, which would take until the end of August. The government also is waiting for an International Monetary Fund report on Spain's banks, due next week, and the results of an audit stress-testing Spain's banking sector, due out in two phases, the first at the end of June and the next at the end of August, the sources said.

"Relative to Bankia, all that was said [by the Spanish government] was that it would be given the money it needs," a government source said. Spanish Economy Minister Luis de Guindos told Congress days before Bankia asked for the 19 billion euros, that "the government would fully support the capital needs that result from (Bankia's) plan."

The source said Bankia's proposal would be presented to the government on June 11 at the same time its peers are due to tell the government how they will meet new rules on recognizing heavy losses related to the property market.

"From then onwards we'll have 15 days to evaluate it. The Bank of Spain will take a decision but that number is not definitive. Bankia brought it up in a presentation, now (Bankia's) plan will be analyzed," the government source said.

Bankia, listed last July after a merger of seven savings banks in 2010, is an emblem of Spain's banking problems. Thousands of small shareholders have seen their investments wiped out, escalating political tensions over the rescue.

Less funding for Bankia would take a minimal amount of strain off Spain at a time when its borrowing costs are reaching all-time highs, effectively shutting it out of the bond market, Treasury minister Cristobal Montoro said on Tuesday .

Haggling over how much of a bailout Bankia actually needs could compound uncertainty about Spain's financial future.

Investors raised questions about how aid would be given to Bankia after a plan to inject government bonds into the bank so they could be tendered at the European Central Bank was floated and then abandoned.

Now the country's rescue fund is due to issue bonds to finance the nationalization of Bankia, although the FROB's access to markets is in doubt.

Spain may find some back-up for its cautious approach to Bankia's rescue in Europe, with a senior EU source saying the European Commission believed the needs had been overestimated.

But it also deepens the confusion around its approach. The Spanish government hired U.S. investment bank Goldman Sachs precisely to assess Bankia's recapitalization needs before the bank's bailout request, and had appeared to give its full support to the rescue needs.

Bankia had last month identified not just extra provisioning needs against its real estate portfolio, but also 5.5 billion of provisions to protect against defaults elsewhere in its loan book and a further 6.7 billion euros related to revaluing its tax credits and stakes in companies. ($1 = 0.8023 euros)

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