Spanish bank eyes stake sale after $24bn bailout
Madrid, May 27, 2012
Spain's fourth biggest lender, Bankia on Saturday prepared to sell stakes it holds in companies to meet European competition rules after a state rescue that has so far cost 23.5 billion euros.
Bankia's parent company BFA asked for a higher-than-expected 19 billion euros in government help on Friday, in addition to 4.5 billion the state has already pumped in, to cover possible losses on repossessed property, loans and investments.
In Spain's biggest-ever bank rescue the state could end up with close to 90 per cent of Bankia after it capitalizes the parent, BFA, then buys preferential shares in Bankia in October. Under Spanish law it should sell off Bankia in three years.
Bad loans at Spanish banks, which are rising in an economic downturn with 24.4 per cent unemployment, are at the heart of worries that Spain could have to seek international aid and take the euro zone debt crisis into a dangerous new stage.
Among the newly recognized potential losses at Bankia and BFA are a 1.6 billion euros write down on corporate stakes including a 12 per cent chunk of International Airlines Group and 5.3 per cent of energy firm Iberdrola.
Bankia, which restated its 2011 accounts to reflect a 3 billion euros loss rather than the previously reported 300 million euros profit, said European Union regulators will sign off on the rescue plan in June.
'In the future logically it's in our plans, and also because of European requirements, we'll have to sell off stakes,' chairman Jose Ignacio Goirigolzarri told financial analysts.
EU competition regulators typically prefer bailed-out lenders to shed non-core 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 fears of a run on deposits at Bankia, Goirigolzarri recognized that there was a 'certain tension' in early May for a few days after the state takeover was announced. Bankia holds 10 per cent of deposits in Spain's banking system.
But he said things had normalized and he expected deposits in June to be higher than they were at the end of last year.
The Bankia rescue is underway amid a broader audit of the Spanish banking sector, which has already raised worries 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 are 184 billion euros of unsellable repossessed property and sour loans after a decade-long building bubble burst in 2007-2008.
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 5 percentage points over German government debt.
'I am certain that the Spanish state will obtain the financing so we will receive the 19 billion euros. That's the commitment,' said Goirigolzarri, adding that he expected to get the funds in July.
The funding will be part of a recapitalisation plan which the bank's board approved on Friday and is backed by the government and the Bank of Spain.
A government source said that 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,' said the government source.
'At this time we're talking about hypotheticals and the impact won't be known until the valuations are done,' he said.
Bankia has now recognized much higher losses than the government has forced Spain's banks to provision for, raising the question whether other banks will also have to identify even wider funding gaps.
The bank provisioned for 900 million euros in refinanced debt that could sour and now assumes that 8 per cent to 10 per cent of its mortgages will go bad.
Spanish bankers typically argue that the bad mortgage rate can never go that high in Spain because it the law makes it difficult for people to walk away from their debt.
But Goirigolzarri said Bankia's situation was different.
Bankia, born out of the merger of seven savings banks in 2010, was listed last July. After an aggressive campaign through its bank branches, many Spanish individuals bought shares, which have lost 57 per cent of their value.-Reuters