Spanish Bank Junior Bondholders Rescued by Taxpayer Cash Pledge

European taxpayers are helping foot the bill for saving junior bondholders of Spain’s nationalized banks from being wiped out, an official at the country’s central bank said.

Bankia SA (BKIA) parent Banco Financiero y de Ahorros SA, created by the merger of seven regional savings banks, will swap its junior debt for shares at valuations between 54 percent and 86 percent of face value, the lender said yesterday. Losses would be higher if Spain’s bank bailout fund, backed by the European Union, hadn’t pledged to inject as much as 18 billion euros ($23.3 billion) into the bank, said the official, who briefed reporters on condition of anonymity.

BFA-Bankia, the country’s largest nationalized bank, had a negative valuation of 13.63 billion euros in June when the rescue fund known as FROB took control of the lender. That compares with about 7 billion euros of BFA-Bankia’s subordinated debt, a type of security that lenders issue to build loss- absorbing buffers.

To contact the reporter on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net