BANKING

Government seeks to reassure account holders as Bankia stocks tumble

Brussels says it must approve any restructuring plan involving state funds for troubled lender

The government on Tuesday sought to reassure the clients of Bankia as the bank’s shares extended their sharp losses on Tuesday, a day after chairman Rodrigo Rato resigned ahead of an expected major shake-up of Spain’s fourth-biggest lender.

The share price of Bankia, which is heavily exposed to the ailing real estate sector, at one point fell by over nine percent in Tuesday’s session after falling over three percent on Monday. However, it managed to pare some of its losses to close down 4.76 percent at 2.262 euros, well below its listing price in July of last year of 3.75 euros.

Bankia’s employees also had to field a flood of questions from worried clients.

The head of the main opposition Socialist Party, Alfredo Pérez Rubalcaba on Tuesday described the government’s handling of the crisis at Bankia as “deplorable.” “That no one in the government has shown their face to explain what is happening seems to be to be deplorable,” Rubalcaba said. “I have my money in Bankia and I’m not going to do anything, but people who don’t know what is happening with their money should be assured.”

No one in the government has shown their face to explain what is happening"

The Economy Ministry issued a statement objecting to the media’s coverage of the news of Rato’s departure as a form of government “intervention.” It is widely assumed the state will inject funds into Bankia to offset the impact of potential losses from its portfolio of real estate assets. Bankia’s parent Banco Financiero y de Ahorros has already received 4.465 billion euros from the Orderly Bank Restructuring Fund (FROB).

Bankia has 31.8 billion euros in problematic loans to the sector, for which it has provisioned 8.3 billion.

The Economy Ministry said what had taken place was simply the “imminent” replacement of the chairman of the bank. Rato has recommended he be replaced by former BBVA chief executive José Ignacio Goirigolzarri. Economy Minister Luis de Guindos on Tuesday said Goirigolzarri was a banker with an “absolutely proven” reputation, domestically and internationally.

“Henceforth, the objective is to execute a clean-up plan, restructuring and an improvement in corporate governance that guarantees \[Bankia’s\] future viability,” the ministry said in a statement.

“The new management team should present its plans to the Bank of Spain through the normal channels,” the statement added. “The government will support the bank in all that is needed to achieve those objectives.”

De Guindos sought to reassure the bank’s customers, saying that he was “convinced” that Bankia “will continue to play an important and primordial role in the Spanish banking sector and in the development of the economy.”

Customers “should be completely reassured because it is a solvent bank with a future.”

The European commissioner for competition, Spaniard Joaquín Almunia, said if Bankia, “as it seems,” receives state funding, the government will have to submit a restructuring plan to Brussels for approval.

“However, as far as any new decisions and measures are concerned, it is a bit difficult for there to be any notification, because we don't know what they are yet, those measures,” Almunia said. He said the government has indicated it will work with the Commission “so that final decisions can be made by us within the appropriate deadlines and as quickly as possible.”

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