Aid for Bankia temporarily cleared
By Sophie Mosca | Thursday 28 June 2012
The European Commission approved for six months, on 27 June, Spanish state aid for Bankia in the amount of €23.5 billion to give Madrid time to present a restructuring plan for the bank.
The rescue plan for the country’s third largest bank in terms of assets (fourth in terms of market capitalisation) includes two measures: the conversion of €4.465 billion of state-owned preferential shares into capital and a €19 million liquidity guarantee for Bankia and its parent company BFA.
The Spanish banking sector has been severely weakened since 2008 with the burst of the housing bubble and has been in turmoil since the 25 May publication of Bankia’s losses (€2.979 billion). Its chief exposure lies in the portfolio of high-risk property assets (€31.8 billion in housing loans that may not be paid back, seized housing, etc). Bankia, created from the merger of seven savings banks in 2010, represents 10% of Spain’s financial system and is consequently considered a ‘systemic’ bank that cannot be allowed to fail, otherwise the entire sector could be contaminated.
The EU executive explains that the support measures will have to be matched with a “deep restructuring” to make the bank “viable without continued state support”. It will adopt a final decision on the measures in the context of its analysis of the restructuring plan. “The conversion of preference shares into capital will simplify the ownership structure of BFA, which becomes fully state-owned, thus making the necessary restructuring decisions easier to take,” commented Competition Commissioner Joaquin Almunia.
The Commission adds that the authorised measures do not concern the €19 million capital injection requested by Bankia’s parent company BFA in late May to help it cope with any losses on bad debts. Spanish authorities are currently examining this aid.
A Bankia statement notes that “this paves the way to 100% ownership by the Spanish state”.
On 27 June, the Eurogroup agreed to Madrid’s request for aid of between €51 billion and €62 billion to shore up its banks, plus an extra “safety margin”. The amount of the aid allocated to Bankia will be determined in the coming months based on a detailed audit drawn up bank by bank.
Spanish financial and government sources have announced, however, that Bankia and the other three nationalised banks, CatalunyaCaixa, NovaGalicia and Banco de Valencia, may need capital injections of around €40 billion as early as July.
The support measures will have to be matched with a “deep restructuring” to make the bank “viable without continued state support”