Why Spain's New Government Has an Old Bank Problem

Among the questions facing Spain’s new government is what to do with its stake in Bankia, the country’s fourth-largest bank. It’s been a headache for Spanish leaders since it required a rescue in 2012 to avert a collapse that could have brought down the nation’s entire financial system. The prior government set itself a deadline of December 2019 to sell its 61 percent stake in Bankia, but its falling price has made selling on the open market a politically unpalatable prospect.

In 2012, with Bankia facing bankruptcy under the weight of the largest holding of real estate among Spanish banks, the government of Mariano Rajoy stepped in to bail it out and took a controlling share of 45 percent in Bankia (which it later increased with further aid packages). The lender had been a troubled project since its inception in 2010, when it was stitched together from seven struggling savings banks. The bank’s price plunged 83 percent within a year of its initial public offering in July 2011 as an economic crisis driven by soured real estate loans peaked.