Rato resigns as Bankia chairman ahead of government shake-up
Lender expected to receive an injection of public funds in the form of convertible bonds
Rodrigo Rato on Monday announced he was resigning as chairman of Bankia, Spain’s fourth-biggest lender in terms of assets. His decision to stand down follows a report on Monday by EL PAÍS saying the government plans an overhaul of Bankia to ease some of the burden from its exposure to the troubled real estate sector that would also include changes in its management team.
Earlier Monday, Prime Minister Mariano said his Popular Party government this Friday “significant measures” in the financial sector that will extend recent reforms, and could include the injection of public funds, a move the government has been reluctant to embrace.
The government wants to dispel doubts about Bankia and the fallout from this on the rest of the sector to restore confidence in the Spanish financial system to get lending moving again.
“A lack of lending is one of the big problems of Spain,” Rajoy said in an interview with Spanish radio station Onda Cero.
“If it were necessary to save the Spanish financial system, I would not reject injecting public funds,” the PP leader said. “My last intention would be to inject or lending public funds, but if it is necessary I will do the same as other governments have done.”
Any funds lent to the banks would be considered public debt, but since the government would charge lenders commercial rates it would not cause the deficit to swell further at a time when the government is facing the daunting challenge of reducing the shortfall in its finances from 8.5 percent of GDP last year to 5.3 percent this year with the economy immersed in a full-blown recession again.
“If you spend more than you have then you have to borrow and for them to give you money, you can’t have high debt levels,” Rajoy said. “We shouldn't spend more than we have; we have to continue carrying out reforms and sending a message that we want to be in the euro.”
Rato said he is proposing to the boards of Bankia and its parent company, Banco Financiero y de Ahorros (BFA), that José Ignacio Goirigolzarri, the former chief executive of Bankia rival BBVA, be appointed executive chairman of both institutions.
Rato, a former economy minister in a previous PP government and ex-managing director of the International Monetary Fund, was appointed chairman of Caja Madrid in January 2010. Caja Madrid subsequently merged with six other savings banks, or cajas, to form BFA and its commercial banking arm Bankia, which listed in 2011 with an initial public offer of over three billion euros.
“As chairman of Caja Madrid since January 2010, and later as chairman of Bankia, we have faced one of the most critical situations to have shaken the Spanish financial system,” Rato said in a statement posted on Bankia’s website. “Nonetheless Caja Madrid successfully led the biggest financial sector tie-up in Spain in which six other savings banks took part: Bancaja, La Caja de Canarias, Caja Ávila, Caja Segovia, Caixa Laietana and Caja Rioja.”
The statement noted that despite making further provisions of 1.2 billion euros last year, Bankia still made a profit of 309 million. Bankia has also slimmed down its operations by closing 800 branches and laying off a quarter of its workforce.
“Now that all of the above challenges have been met, I have decided to pass the baton on to a new manager because I believe this to be best for the institution,” Rato said.
Under the plan being finalized by the Bank of Spain and the Economy Ministry, Bankia could receive an injection of public funds in the form of convertible bonds that would carry commercial interest rates of around eight percent. Market sources believe Bankia could need between five and 10 billion euros to clean up its balance sheet.
Bankia last Friday declared it has problematic loans and other assets relating to the real estate sector of 31.8 billion euros, for which it has already provisioned 8.3 billion. The default ratio of its real estate loan portfolio stood at 28 percent at the end of last year.