Markets Punish Bankia After Nationalization

By | May 10, 2012

Madrid (Source: Sinikka Tarvainen dpa, Hamburg, Germany (MCT)) – The Spanish government’s decision to nationalize the troubled bank Bankia failed to dispel investor concerns on Thursday, with Bankia shares down 3.7 per cent on the Madrid stock exchange by midday.

Bankia had already gone down by more than 13 per cent since the beginning of the week.

 

Several other Spanish banks, however, did better, with the two largest ones Santander and BBVA up 1.08 and 0.56 per cent respectively by midday.

 

The yield for Spanish 10-year-bonds dropped slightly, but remained above 6 per cent.

 

The ratings agency Standard and Poor’s maintained a negative outlook for Bankia, saying the government’s decision to nationalize it revealed a growing uncertainty about its future.

 

The state will convert into shares 4.6 billion euros (5.9 billion dollars) which it had injected into Bankia through the bank restructuring fund FROB, the government announced late Wednesday.

 

That will make the state the biggest shareholder in Bankia, Spain’s fourth-largest bank, with a 45-per-cent ownership stake.

 

The government was also expected to inject up to 10 billion euros into Bankia, a group of seven savings banks whose chairman Rodrigo Rato announced his resignation on Monday. Rato was succeeded by former BBVA chief executive Jose Ignacio Goirigolzarri.

 

Bankia was the Spanish bank most exposed to the meltdown of Spain’s property bubble four years ago. It holds nearly 32 billion euros in toxic real estate assets.

 

The nationalization was seen as an attempt to prevent a further deterioration of Bankia’s finances and to calm financial markets.

 

Spain has already rescued seven smaller savings banks, but the Bankia rescue is much bigger and therefore likelier to fuel concern about Spain’s financial solidity.

 

The Bankia rescue was to be accompanied by a more general financial reform due to be announced on Friday.

 

The reform was expected to include a liquidation entity to rid banks of souring real estate assets by evaluating and selling them off.

 

Spanish banks hold a total of more than 180 billion euros in troubled real estate assets in the form of land, housing and bad loans.

 

The government earlier ordered banks to set aside 54 billion euros in provisions against toxic real estate assets.

 

Banks will now be told to raise between 32 and 42 billion euros more in provisions to cover bad, as well as sound, loans in their property portfolios, media reported. dpa sit hl Author: Sinikka Tarvainen

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©2012 Deutsche Presse-Agentur GmbH (Hamburg, Germany)

Visit Deutsche Presse-Agentur GmbH (Hamburg, Germany) at www.dpa.de/English.82.0.html

Distributed by MCT Information Services

Source: Sinikka Tarvainen dpa, Hamburg, Germany (MCT)

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