SPAIN WAS last night scrambling to nationalise part of Bankia, its third-largest bank by assets, amid worries over the country’s financial system that sent its equity and bond markets falling yesterday.
José Ignacio Goirigolzarri, Bankia’s new chairman, was meeting the board of its parent company – which controls 45 per cent of the bank – last night to propose that the government take a large stake in the troubled lender, people familiar with the situation said.
Mariano Rajoy, Spain’s prime minister, assured Bankia’s deposit holders yesterday that the government would stand behind the bank.
Bankia suffered steep falls in its share price following the resignation on Monday of Rodrigo Rato, its executive chairman. Spanish equities dropped 2.8 per cent to close at the lowest level since October 2003, and 10-year government bond yields, which have an inverse relationship with prices, jumped more than 6 per cent, pushing closer to levels considered unsustainable by markets.
Bankia shares fell 5.8 per cent, Santander dropped 4.52 per cent, BBVA was 4.73 per cent lower and La Caixa fell 6.7 per cent.
Turbulence on the Spanish markets came despite Mr Goirigolzarri, a former chief executive of BBVA, being named as Bankia’s new chairman and expectations that the government was about to inject new capital into the lender.
On Friday the government is expected to ask banks to set aside at least an extra €30 billion in capital against their property assets, people with knowledge of the plans said. This would be likely to take the form of the general provisions for all property loans being raised from 7 per cent to 30 per cent, with those banks that cannot afford this being granted a form of state-backed guarantee for which the state would charge them. Spanish banks have about €180 billion of problematic property loans made during Spain’s decade-long housing bubble.
Bankia and its parent company BFA have a combined property exposure in Spain of €51.5 billion, the largest of any bank in the country, including Santander, the euro zone’s largest lender by value, which has an exposure of €32 billion, according to research by CA Cheuvreux.
Worries over Spain, which the European Commission fears will miss its deficit reduction target, and Greece, where parliamentary elections at the weekend failed to produce a majority government, prompted many investors to rush into the havens of US, German and UK bonds.
– Copyright The Financial Times Limited 2012
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