ECB Wasn’t Consulted on Spanish Recapitalization Plan

The European Central Bank denied it has rejected a plan floated by the Spanish government to recapitalize Bankia, saying it hasn’t been approached.

“Contrary to media reports published today, the European Central Bank has not been consulted and has not expressed a position on plans by the Spanish authorities to recapitalize a major Spanish bank,” the Frankfurt-based ECB said in an e-mailed statement. “The ECB stands ready to give advice on the development of such plans.”

The Spanish government itself has backtracked on an idea to recapitalize Bankia by injecting sovereign debt into its parent company that, according to the Financial Times, could then be used as collateral to borrow from the ECB. An Economy Ministry spokesman said yesterday the plan had become “marginal,” and Economy Minister Luis de Guindos today told lawmakers that his government hasn’t presented any proposals to the ECB for the recapitalization of Bankia.

Earlier today, the FT reported such a plan was rejected by ECB officials.

Spain’s IBEX 35 dropped 1.1 percent as Bankia lost 3.4 percent amid the country’s ongoing struggles to recapitalize the banking sector. Bankia has tumbled 30 percent this week.

Second Version

To add to the confusion, the ECB issued a second version of its statement that included a line saying “the funds needed to ensure banks’ compliance with capital requirements cannot be provided by the Eurosystem,” suggesting it would be opposed to the plan in question. It then said this wording had been published erroneously.

Spain nationalized the Bankia group on May 9, leading the lender with the biggest Spanish asset base to request 19 billion euros ($23.9 billion) of government backing to clean up lending to property developers and other loans such as residential mortgages.

The size of the support needed for Bankia, and the implication that other banks may also need state support to repair their balance sheets, has pushed the country’s 10-year yields to the most relative to German bunds since the euro was created.

Spain’s 10-year bonds declined today, propelling the yield 24 basis points higher to 6.68 percent, the most since Nov. 28.

(Corrects to remove reference to Wall Street Journal in fourth paragraph )
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