Spain takes over Bankia to steady ailing sector

Thu May 10, 2012 5:34am EDT
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By Fiona Ortiz

MADRID (Reuters) - Hoping to put an end to a four-year banking crisis, Spain's government effectively took over Bankia SA (BKIA.MC: Quote), one of the country's biggest banks, late on Wednesday after days of market anxiety over the lender's viability.

The centre-right government of Prime Minister Mariano Rajoy told Spaniards the banking sector was safe and said more measures to strengthen ailing lenders would come on Friday after a February banking reform proved insufficient.

The sector has 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. It was formed in 2010 when the government forced a number of weak savings banks into a merger to try to save them.

"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.

Bankia shares fell 3.0 percent to 2.065 euros by 0908 GMT having hit an all-time low of 2.050 euros, down almost 16 percent since news of an impending rescue emerged on Monday. But most other Spanish blue-chips were up, along with other European stocks that have been punished by concerns over Greece's political crisis and Spanish banks.

Spain's country risk, as measured by the spread between yields on its 10-year benchmark bond and the German benchmark, eased slightly but held close to six-month highs.

The state took complete control of Bankia's parent company BFA by converting an earlier 4.5 billion euro rescue loan into equity. That gives the government 45 percent of Bankia, but it is expected to merge the two entities and control both.   Continued...

People walk past the Bankia headquarters tower in Madrid May 9, 2012. Shares in Spain's fourth largest lender, Bankia, fell a further 6 percent on Wednesday before an expected formal transfer of power at the bank to Jose Ignacio Goirigolzarri from Rodrigo Rato, who resigned on Monday. REUTERS/Paul Hanna