Bankia and its parent Banco Financiero y de Ahorros (BFA), which were nationalized earlier this month, will ask the state for a further 19 billion euros to clean up their balance sheet, sources close to the bank said on Friday.
The Bank of Spain’s Orderly Bank Restructuring Fund (FROB) is already converting 4.465 billion euros in preference shares given to BFA into common stock, which will give the government control of both BFA and Bankia. The total rescue package of 23.5 billion euros will be by far the biggest bailout in Spain. The government had earlier calculated that a clean-up of the banking system as a whole would not amount to more than 15 billion euros, half of which was earmarked for Bankia.
The figures have yet to be confirmed officially by Bankia whose board of directors started a meeting to discuss the state of the bank’s finances at 4.30pm. The National Securities Commission (CNMV) on Friday suspended trading in Bankia’s shares on the request of the bank ahead of the announcement on the capital requirements of Spain’s fourth-largest lender.
Bankia’s shares closed Thursday down 7.43 percent at 1.57 euros, a 58-percent discount to the bank’s listing price last year of 3.75 euros.
The banks have been ordered to increase their provisions by up to 84 billion euros for potential losses against real estate assets.
BFA-Bankia needs to make provisions for loans to real estate developers of 7.1 billion euros and needs a further capital cushion of 1.9 billion. BFA is also expected to have to write down the book value of its 45-percent stake in Bankia, which currently stands at 12 billion euros against a market value of under 1.5 billion, which is expected to see it restate its 2011 results to show a loss.
If we go for the public bank option, we must have maximum transparency and parliamentary control”
The government is considering folding all of the lenders that have been taken over by the Bank of Spain to form a large public bank. The government has also taken over the reins at Caixa Catalunya, Novagalicia and Banco de Valencia.
Ahead of a meeting with Prime Minister Mariano Rajoy, the leader of the main opposition Socialist Party, Alfredo Rubalcaba, said this was an option worth considering.
“We should study this. If we go for this option, a public bank, it should have the status of a public bank: maximum transparency and parliamentary control,” Rubalcaba said.
There was further bad news for Spain’s banks on Friday when Standard & Poor’s cut the credit ratings of Bankia, Banco Popular Español and Bankinter to junk status and also took ratings action on other Spanish lenders.