The move, announced late Wednesday, May 23, by Economy Minister Luis de Guindos, includes €7.1 billion of cash to cover Bankia's ailing property loans portfolio and €1.9 billion to boost capital reserves.
Spain's bank rescue fund, or Frob, "will cover whatever capital increases may be necessary, using the available instruments that are most appropriate to this type of operation," de Guindos told a congressional committee.
The government did not put an upper limit on the value of the bailout, noting that Bankia has been asked to submit a "viability plan" in the coming days. That will include an outline of the resources the bank has to help fund its own rescue. De Guindos noted that most of the funds were likely to come from the state and that the bailout would result in the state taking a majority position in Bankia's capital.
Spain took a 45% stake in Bankia on May 9, when it converted €4.5 billion of debt into equity in the lender's parent company, Banco Financiero y de Ahorros SA.
Madrid-based Bankia had claimed earlier this month that it would need only €4.7 billion to cover its loan book, while its parent would need less than €100 million. The figures were disputed by analysts including Goldman, Sachs & Co., which published a note suggesting the bank would need about €13.5 billion more funding.
Goldman, Sachs is also advising the Spanish government on the bank's bailout.
In recent weeks Bankia has brought into focus concerns about Spain's entire banking sector, which has suffered from massive writedowns on loans to property developers that were made during a real estate bubble that collapsed in 2008. Spanish lenders have an estimated €148 billion of underperforming loans, equal to about 8.36% of their total loans, the Bank of Spain said in a report published Friday.
Despite the wider malaise, de Guindos insisted Wednesday that the government would not have to intervene to save other lenders. "Bankia-BFA was a unique case in the Spanish financial system, because of its high market share, high exposure to real estate, higher than the sector average," he said. "It's not correct to extrapolate its problems to the rest of the Spanish financial system."
Spain's government, led by Mariano Rajoy, has twice increased the amount of reserves that Spanish banks have to hold to cover their property loans, forcing lenders to find a total €80 billion of capital to meet the new rules.
The demands of the new funding were expected to prompt some banks to sell assets and on Thursday Spain's No. 2 lender, Banco Bilbao Vizcaya Agentaria SA, said it was considering the sale of its Latin American fund administration business.
BBVA, which needs additional cover of €1.8 billion, is also seeking bidders for some property portfolios, Bloomberg reported Thursday, citing two people with knowledge of the matter.
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