Bankia seeks US$24-billion bailout as debt worries mount

The Bankia group, a Spanish lender nationalized earlier this month, will seek 19-billion euros (US$23.8-billion) of government funds as it provisions against real estate and non-property loans.

The group will ask the state?s bank rescue fund to provide the money by buying shares in its parent company, Banco Financiero y de Ahorros, it said in a filing to regulators yesterday after a meeting of the board of Bankia SA, its listed arm. The group needs a further 4 billion euros to cover real estate on top of provisions already ordered by the government, and 5.5-billion euros for the rest of its loan book, it said.

?Bankia is the tip of an iceberg as we?ve been saying all along . . . It?s systemically important and it needs to be dealt with properly?

The unraveling of Bankia has deepened concern about the health of Spain?s banks and increased the government?s financing costs as it struggles with the debt crisis. The restructuring costs for BFA, which come on top of 4.5-billion euros from a first government bailout, compare with a May 11 estimate from Economy Minister Luis de Guindos that less than 15 billion euros of public funds would be needed to support the whole industry.

?Bankia is the tip of an iceberg as we?ve been saying all along,? said Tobias Blattner, an economist at Daiwa Capital Markets in London, in a phone interview yesterday. ?It?s a very large institution, it?s systemically important and it needs to be dealt with properly.?

Cut to Junk

The Bankia group, formed in 2010 from a merger of seven savings banks led by Caja Madrid and Valencia-based Bancaja, last year listed its banking business on the stock exchange after parking its worst real estate assets in the parent company.

Bankia was among three Spanish banks that had their credit ratings cut to junk by Standard & Poor?s yesterday, citing Spain?s weakening economy. S&P lowered Bankia to BB+ from BBB- and BFA to B+ from BB-, the ratings company said in a statement. Banco Popular Espanol SA and Bankinter SA were reduced to BB+ and Banca Civica SA was cut to BB.

Bankia announced yesterday a restated 2011 loss of 2.98-billion euros, ?without reservations from auditors.? The company plans to reduce its board to 10 members from 18, with only Chairman Jose Ignacio Goirigolzarri and Chief Executive Officer Francisco Verdu remaining, it said in a filing.

Goirigolzarri will brief reporters on the restructuring plan today at 10 a.m. in Madrid and the bank will hold a webcast for analysts and investors at 12.30 p.m.

Spain said May 9 it would nationalize Bankia?s parent, making the state the biggest shareholder in the listed unit, just days after Chairman Rodrigo Rato resigned and the lender released 2011 accounts that weren?t signed by its auditor.

More Provisions

De Guindos on May 11 ordered lenders to set aside 30 billion euros to cover still-performing real estate loans, adding to demands made in February for provisions and capital of 53.8-billion euros.

Spain?s 10-year bond yield has climbed to 6.31% from 5.73% on May 7, the day Rato announced his resignation. Bankia has declined 58% in Madrid trading, to 1.57 euros, since selling shares to the public in July. The stock was suspended on May 25.

The additional 4-billion euros that the bank is seeking to cover real estate takes its total provisions for those assets to 12.7-billion euros. In addition to 5.5-billion euros to cover non-real estate lending under an ?adverse? stress scenario, the group needs 6.7-billion euros to clean up stakes in companies and tax assets, the group said.

?Big Number?

The group expects the state rescue fund, known as the FROB, to take control of BFA through the capital increase in June. After that, the Bankia unit will be recapitalized by a 12-billion-euro rights issue guaranteed by BFA that will probably go ahead in October, the group said.

The Bankia group will have a so-called principal capital ratio, a measure of financial strength, of 9.8% and a ratio of provisions to real estate assets of 48.9% after the cleanup, it said.

De Guindos told parliament on May 23 that Spain would provide as much public money as necessary for the Bankia group as he said it was a ?specific case,? without any read-across for the rest of the industry.

?It?s a big number for the restructuring, much more than the government had previously required, and shows the importance of going in and having a good look at the assets,? said Daragh Quinn, an analyst at Nomura International in Madrid.

Bloomberg.com

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