Out-Law News 2 min. read

Troubled Spanish bank is to be part-nationalised, Bank of Spain confirms


Spain's fourth largest bank is to be part-nationalised, the country's central bank has announced.

National bank Banco de Espaňa said that €4.47 billion worth of securities issued by the country's bailout fund, the Fund for the Orderly Restructuring of the Banking Sector (Forb), would be converted into ordinary shares as the "most advisable option for strengthening the financial soundness of the business". The share capital, worth 45% of the bank, will be held by Forb.

"The events in recent weeks and the growing uncertainty over the institution's future have advised further action, with the provision of public funds being considered to expedite and increase the clean-up," Banco de Espaňa said in a statement. "In any event, BFA-Bankia is a solvent institution that continues to operate on an absolutely normal footing. Its customers and depositors have no cause for concern."

Bankia was created in 2010 from a merger of seven struggling savings banks. It is now the country's fourth-biggest bank, but also has the industry's biggest exposure to the property market. The bank currently holds €32bn in distressed property assets, according to the BBC. Bankia's executive chairman Rodrigo Rato, former Spanish economy minister and a former head of the International Monetary Fund, resigned earlier this week.

"The change at the helm of BFA-Bankia is precisely along the lines of making the management of the group more professional, and it will give impetus to its restructuring programme," Banco de Espaňa said. "The new management of Bankia will have to submit, as soon as possible, a fortified clean-up plan that will place it in a position to address its future with every guarantee of success."

The Spanish Council of Ministers is due to meet on Friday to discuss measures to reorganise the country's banking system, with a main purpose "to return credit to the economy", according to President Mariano Rajoy. He said that the Government would ask the country's financial entities to "appropriate value" their real estate assets and "adjust prices to the current market in order for properties to be sold, loans to be issued and for there to be no doubt whatsoever" as to their solvency.

"I think that the decisions we will adopt on or before Friday will lead to the resolution of a large part of the economic problems that exist in Spain," he said. "We know the situation is difficult, we know what needs to be done and we are going to do it."

Banking law expert Tony Anderson of Pinsent Masons, the law firm behind Out-Law.com, said that the Spanish response to its current economic crisis would be "crucial". The country's economy recently entered its second recession since 2009.

"Whether the assets of these banks will be transferred to different vehicles depending on their value, and whether the Spanish follow the UK in ringfencing retail banking for example, will be key questions for banks in other Eurozone jurisdictions," he said.

A bill to further strengthen regulation of the financial services sector and implement the recommendations of the Independent Commission on Banking (ICB) was announced on Wednesday as part of the Queen's Speech. The ICB, which was set up by the Government to investigate ways of making UK banking safer and more competitive following the 2008 financial crisis, proposed that retail banking activities be provided by a separate subsidiary of a wider banking group which should be legally, economically and operationally distinct from the group's investment banking activities. 

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