Spain nationalises No. 4 bank as crisis deepens
Spain's government will effectively nationalise the nation's fourth-largest bank to shore up the hurting banking sector and try to convince investors the country doesn't need a bailout like those taken by Greece, Ireland and Portugal, the Economy Ministry said Wednesday.
Under the deal, €4.5 billion (US$5.9 billion) in funding that Bankia SA received from Spain in 2010 and 2011 will be converted into shares of the institution's parent company, the ministry said in a statement.
On Friday, the government is expected to announce a more wide-ranging banking system overhaul to free up frozen credit as Spain weathers a recession and 24.4 per cent unemployment - the worst jobless rate among the 17 nations that use the euro.
Bankia faces the heaviest exposure among Spain's banks to bad property loans caused by a construction boom that went bust, and holds €34 billion in problematic loans.
The government decision to assume control of the bank came after Bankia directors approved the plan and nervous investors sent Spanish government bond yields soaring and stocks plunging. They are concerned Spain may be forced to ask for a bailout.
Spain will get 45 per cent of Bankia under the deal and "will acquire control", the ministry said.
The statement called the move "a necessary first step to ensure solvency, the tranquility of the depositors and to dispel the doubts of the markets on the capital needs of the entity."
About 10 million Spaniards have accounts with Bankia.
Spain's goal is to give incentives for Spanish banks largely frozen out of international capital markets to again start giving credit to hurting businesses and consumers caught up in a bleak economy expected to contract 1.7 per cent this year, Prime Minister Mariano Rajoy said.
Bankia is the result of a merger of seven cajas, or regional savings banks. The largest was called Caja Madrid.