Rajoy's Key Ally Opposes State-Owned Bankia Bidding for Popular

Bailed-out Spanish lender Bankia SA shouldn’t bid for beleaguered Banco Popular Espanol SA until it has spelled out when the government will relinquish control, said the head of economic policy at Ciudadanos, a party that Prime Minister Mariano Rajoy relies on to pass key legislation.

“At the moment, management of Bankia is highly professional,” said Luis Garicano, who in addition to his role with Ciudadanos is also a professor at the London School of Economics. “But given the dominant position of the Spanish state, nothing would preclude the current or a future government turning the bank into a political arm.”

Bankia, a lender formed from the merger of seven savings banks, was nationalized in 2012 when Spain sought a European bailout to shore up the financial industry amid concern that the costs of propping it up would destabilize government finances. The government has so far recovered about 1.8 billion euros ($2 billion) of state aid for the Bankia group, which needed a total bailout of more than 22 billion euros.

Economy Minister Luis de Guindos said last month that Bankia was looking at the situation facing Popular. Popular Chairman Emilio Saracho, a former JPMorgan Chase & Co. vice-chairman named earlier this year to run the bank as it bids to stem mounting losses, has said the bank’s path to recovery lies through raising more capital or seeking a buyer.

The government began the process of recovering bailout funds for Bankia when it sold 7.5 percent of the lender at 1.51 euros a share to raise 1.3 billion euros in February 2014. The share now trades at 1.04 euros. De Guindos has promised Spaniards the bailout won’t cost taxpayers a penny.

Bankia is already absorbing a smaller state-owned lender Banco Mare Nostrum SA a deal that would create a bank with 230 billion euros of assets. If Bankia were to take control of Popular, the combined lender would have almost 380 billion euros of assets, making it similar in size to Spain’s third-biggest lender CaixaBank SA.

Increasing Bankia’s size still further while it remains in government hands would raise the risk of a repeat of the type of political interference that was one reason behind the the collapse of many of Spain’s savings banks during the financial crisis, said Garicano.

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