Spain government takes over Bankia

MADRID - Reuters

Executives stand outside the Bankia headquarters in Madrid, May 9. Spain’s fourth largest lender, Bankia, has been taken over by the government. REUTERS photo

Hoping to put an end to a four-year banking crisis, Spain’s government effectively took over Bankia, one of the country’s biggest banks, late on May 9 after days of market anxiety over the lender’s viability.

The center-right government of Prime Minister Mariano Rajoy told Spaniards the banking sector was safe and said more measures to strengthen ailing lenders would come today.

The sector has already been through three major overhauls since a building and property market crash in 2008, which left lenders with what is now about 184 billion euros ($238 billion) in toxic assets including repossessed housing complexes that stand empty.

Holding 10 percent of deposits in Spain’s banking system, Bankia is by far the largest of eight banks that the government has rescued over recent years.

“Bankia is a solvent entity that continues absolutely normal operations and its clients and depositors have no cause for concern,” the central bank said in a statement.

No sign of deposit run
The public seems to have accepted the government’s assurances and so far there have been no signs of any deposit runs in Spanish banks.

Inside a Bankia branch in Madrid there was a normal flow of about eight clients on yesterday morning. “I’m not worried. I know my money is safe ... Maybe people with more money don’t see it that way,” said Fernando Hernando, 42, an interior designer, who was in the bank on regular business.

For years banking analysts and critics have pushed Spain to go further in recognising its banking troubles, which threaten to undermine the euro currency zone if the rescue is so expensive that it breaks Spain’s public finances.

“Bankia has ended up in state hands because nobody accepted the reality of its financial situation in time,” said an editorial in El Mundo newspaper, which is generally sympathetic to the ruling People’s Party.

Bankia’s exposure
Bankia’s exposure to troubled real estate assets, including loans at risk of default and repossessed properties from bankrupt borrowers, is some 32 billion euros.

“Better late than never,” said Expansion newspaper of the government’s move, saying both the central bank and politicians had let the problem get out of hand.

With the economy in a second recession since 2009 and one in four workers jobless, banks face rising loan defaults beyond those connected with the burst construction bubble.

Spain will demand today that banks set aside another 35 billion euros against loans to the ailing building sector - above and beyond the 54 billion they are already provisioning this year - raising the possibility more public cash will be needed to rescue the country’s lenders. The government is also expected to detail a scheme to remove toxic assets from banks’ books and sell them off.