Bankia nationalised to steady ailing economy

Under the deal €4.5 billion (£3.6bn) in funding that Bankia SA received from state coffers in 2010 and 2011 will be converted into shares of the institution’s parent company, the Economy Ministry said in a statement.

The government is expected to announce a more wide-ranging banking system overhaul tomorrow to free up frozen credit as Spain weathers a recession and 24.4 per cent unemployment — the worst jobless rate among the 17 eurozone member states.

Insiders say that it is likely to demand that banks set aside at least an extra €30bn (£24bn) in capital against their property assets.

Bankia faces the heaviest exposure among Spain’s banks to bad property loans caused by a construction boom that went bust, and holds €34bn (£27.25bn) in bad loans.

The government decided to assume control of the bank after Bankia directors approved the plan, under which the government will get 45 per cent of Bankia and “will acquire control.”

The ministry said that the part-nationalisation was “a necessary first step to ensure solvency, the tranquility of the depositors and to dispel the doubts of the markets on the capital needs of the entity.”

Speaking before the announcement Spanish PM Mariano Rajoy said that the government “guarantees the stability of the overall banking system.”

He said that his government wants to give incentives for Spanish banks largely frozen out of international capital markets to again start lending to businesses and citizens.