Spain to announce clean-up plan for Bankia: sources

Mon May 7, 2012 5:37am EDT
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By Paul Day

MADRID (Reuters) - Spain is set to announce a rescue plan for ailing bank Bankia SA (BKIA.MC: Quote) as part of a wider reform of the deeply troubled banking sector, whose woes threaten Spain's financial stability and the euro zone as a whole, sources said on Monday.

The reform of Bankia, saddled with huge toxic loans which put it at the heart of Spain's banking crisis, will include cash injections and a management shakeout, a government source and another source said. The lender is run by Rodrigo Rato, a former minister for the ruling centre-right People's Party.

However the sources declined to confirm reports Bankia - an agglomeration of local banks or "cajas" - would need as much as 10 billion euros ($13 billion) in capital, and it was not clear how the government, struggling to reduce its deficit, will raise the money.

Spanish Prime Minister Mariano Rajoy said on Monday his government will detail a fresh banking system reform on Friday, saying he would use state money to help lenders, but only as a last resort. He said the plan would not affect the public deficit.

"The plan is being finalized by the Economy Ministry and the Bank of Spain. It will include major changes in the management," one of the sources said.

The Bankia rescue will dovetail with a wider plan to create a so-called bad bank to park and eventually sell off toxic real estate assets held by the banks.

The clean-up of Bankia's balance sheet, which holds around 10 percent of domestic deposits and is highly exposed to the collapsed property sector, would involve billions of euros in a state-backed loan at a rate near 8 percent, El Pais said.

The Bank of Spain and Bankia declined to comment.   Continued...

Spanish Prime Minister Mariano Rajoy (L) is applauded by President of Spanish bank Bankia, Rodrigo Rato, after talking at a conference in Madrid March 6, 2012. REUTERS/Andrea Comas