Meeting rules
Spain’s Bankia to sell off stakes after bail-out
SPAIN’S fourth-biggest lender, Bankia, would sell the stakes it holds in companies to meet European competition rules after a state rescue that has so far cost ¤23,5bn, it said at the weekend.
Bankia’s parent company, BFA, asked for a higher than expected ¤19bn in government aid on Friday, in addition to the ¤4,5bn the state has already pumped in, to cover possible losses on repossessed property, loans and investments.
In Spain’s biggest bank rescue, the state could end up with close to 90% of Bankia after it capitalises BFA then buys preferential shares in Bankia in October. Under the law, it should sell Bankia in three years.
Bad loans at Spanish banks — which are rising in an economic downturn with 24,4% unemployment — are at the heart of concern that Spain could seek international aid and take the euro-zone debt crisis into a dangerous new stage.
Among the newly recognised potential losses at Bankia and BFA are a ¤1,6bn write-down on corporate stakes, including a 12% chunk of International Airlines Group and 5,3% of energy firm Iberdrola.
Bankia, which restated its 2011 accounts to reflect a ¤3bn loss rather than the previously reported ¤300m profit, said European Union (EU) regulators would sign off on the rescue plan next month.
“We’ll have to sell off stakes,” chairman Jose Ignacio Goirigolzarri told financial analysts.
EU competition regulators typically prefer bailed-out lenders to shed noncore 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 fear of a run on deposits at Bankia, Mr Goirigolzarri said there was a “certain tension” for a few days early this month after the state takeover was announced. But he said things had returned to normal and he expected deposits next month to be higher than they were at the end of last year. Bankia holds 10% of deposits in Spain’s banks.
The Bankia rescue is under way amid a broader audit of the Spanish banking sector, which has already raised fear that 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 is ¤184bn of unsellable repossessed property and sour loans after a decade-long building bubble burst in 2007-08. 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 five percentage points over German government debt.
A government source said 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,” the source said.
Bankia has now recognised much higher losses than the government has forced Spain’s banks to make provision for, raising the question of whether other banks will also have to identify even wider funding gaps. The bank made provision for ¤900m in refinanced debt that could sour and now assumes 8%-10% of its mortgages will go bad.
Spanish bankers typically argue that the bad mortgage rate can never go that high in Spain because the law makes it difficult for people to walk away from their debt.
But Mr Goirigolzarri said Bankia’s situation was different.
“When you analyse 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 at a meeting 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 ¤15bn — a figure dwarfed by what Bankia alone will need.
Spain has restructured the banking sector four times without convincing investors.
Mr Goirigolzarri said that he did not envisage that about ¤4bn in preference shares would be converted into capital.