Spain plans to partly nationalize BFA-Bankia group as Prime Minister Mariano Rajoy tries to restore investor confidence with his second overhaul of lenders in three months, a government official said.
The government will become the largest shareholder in the bank that has the biggest Spanish asset base, said the official, who declined to be named because the plan hasn’t been announced.
It’s also working on a plan to force banks to set aside more provisions on real estate loans that are still healthy, said a person familiar with the situation, who also declined to be identified. The rules, to be approved on May 11, will increase provisions on the loans to about 30 percent from 7 percent, creating an additional buffer of about 30 billion euros ($39 billion), the person said.
An Economy Ministry spokeswoman declined to comment.
Rajoy, who said for the first time this week he may use public money to shore up banks, is trying to restore trust in the financial system without overburdening public finances. Bankia group, which received its first bailout in 2010, is the lender with most real estate on its books, making it key to efforts to overhaul the system.
The premier today declined to answer a question on Bankia at a press conference in Oporto, Portugal, saying the government will make decisions to strengthen lenders on “Friday and before.”
Spanish bank shares plunged as investors considered the impact of forcing lenders to add to 53.8 billion euros of provisions and capital against real estate already ordered by the government in February.
“This is a big number, but no one can guarantee it will be enough,” Inigo Lecubarri, who helps manage about $300 million at Abaco Financials Fund in London, said in a phone interview.
Rajoy said yesterday the Treasury is the only borrower in Spain that has access to capital markets and the nation’s sovereign borrowing costs are close to records. The yield difference between Spanish and German bonds widened to 4.55 percentage points today, the most since November, and the cost of insuring against a Spanish default rose to a record. Ten-year bond yields exceeded 6 percent.
Bankia fell 5.8 percent as Jose Ignacio Goirigolzarri, the former second-in-command at Banco Bilbao Vizcaya Argentaria SA, became chairman of the lender after the board accepted the resignation of Rodrigo Rato. The nationalization plan may be announced as soon as today, ABC newspaper reported earlier.
Banco Popular Espanol SA, Spain’s fifth-biggest lender, fell as much as 4.7 percent and CaixaBank, the fourth-biggest, tumbled as much as 6.7 percent.
Raising the provisioning level for performing property loans to 30 percent may force Popular into a 1.93 billion-euro loss this year and cause a 1.44 billion-euro loss at CaixaBank, Keefe, Bruyette and Woods Ltd. analysts Antonio Ramirez and Marta Sanchez Romero said in a report. Bankia may lose 3.7 billion-euro loss, according to the report.