Spain’s unusual Bankia bailout spooks markets
SHARES in bust lender Bankia plunged 13.4 per cent yesterday after details emerged of a controversial bailout plan that will see the Spanish government take a 90 per cent ownership stake in the bank.
Analysts estimated that the number of Bankia shares in existence could rise by a factor of six to nine due to the €19bn (£15.2bn) bailout that will be paid to unlisted parent group BFA, with €12bn passed on to Bankia.
Bankia’s parent BFA last night restated its 2011 results to account for the rescue, and now reflects a loss of €3.3bn rather than the previously stated profits of €41m.
Markets are also worried about the form the bailout will take. It emerged over the weekend that Madrid is considering an unusual plan that would see it inject capital using its own bonds rather than cash.
In turn, Bankia would use the bonds to tap the European Central Bank for a mountain of cash.
But the ECB has not yet indicated whether it would authorise such a bailout and it would require Bankia to take out new loans from the central bank each month because there are currently no plans to hold another auction of long-term three-year cash.
It would also be controversial because it loads the ECB with more sovereign debt that could fall in value, making its balance sheet more risky.
“It would be a neat solution for the sovereign,” said Berenberg Bank’s Holger Schmeidung, pointing out that it supplies both a buyer for public debt and a capital source for Bankia.
Yields on Spain’s ten-year debt jumped by 16 basis points to 6.47 per cent yesterday.