Spanish government takes over one of country’s largest banks to quell anxiety

Hoping to put an end to a four-year banking crisis, the Spanish government effectively took over Bankia SA, one of the country’s biggest banks, after days of market anxiety over its viability.

The centre-right government of Mariano Rajoy told Spaniards the banking sector was safe and said more measures to strengthen ailing banks would be announced today after reforms in February proved insufficient.

The pledges to reform the banks pulled Spanish stocks off the nine-year low they hit a day earlier, with the blue-chip index rebounding 3.66% yesterday amid heavy trade in top banks BBVA and Santander.

The sector has been through three major overhauls since a building and property market crash in 2008, which left lenders with about €184bn in toxic assets including repossessed housing complexes that stand empty.

Holding 10% of deposits in Spain’s banking system, Bankia is by far the largest of eight banks that the government has rescued in recent years. It was formed in 2010 when the government forced a number of savings banks into a merger to try to save them.

“Bankia is a solvent entity that continues absolutely normal operations and its clients and depositors have no cause for concern,” the central bank said in a statement.

Spain’s country risk, as measured by the spread between yields on its 10-year benchmark bond and the German benchmark, eased slightly but held close to six-month highs.

The state took complete control of Bankia’s parent company BFA by converting an earlier €4.5bn rescue loan into shares. That gives the government 45% of Bankia, but it is expected to merge the two entities and control both.

The government is also expected to pump another €10bn of loans or cash in to Bankia to cover the hole left by bad loans.

— Reuters

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