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MADRID — Rodrigo Rato, the executive chairman of Bankia, resigned Monday before an anticipated government recapitalization of the company, Spain’s largest real estate lender, which is sitting on €32 billion of troubled assets.
Mr. Rato, a former finance minister and past managing director of the International Monetary Fund, is the most prominent Spanish banker to quit since the start of the euro zone’s sovereign debt crisis, which has raised concerns not only about the solvency of Spain’s banks but of its economy as a whole.
While the government and the central bank have been debating in recent days how to clean up the balance sheets of the most troubled banks, Prime Minister Mariano Rajoy confirmed for the first time Monday that such a rescue plan could involve public money. Earlier, he had pledged not to make taxpayers bear the cost of saving the banks.
Bankia is now expected to receive €7 billion to €10 billion, or $9.1 billion to $13 billion, of additional state funding, in the form of convertible bonds, according to reports Monday in the Spanish media.
“Something urgently had to be done about Bankia because the size of its problematic assets made it the most delicate and dangerous part of the whole financial sector,” said Jordi Fabregat, a finance professor at the Esade business school in Barcelona. “What’s unclear is whether this will be enough to restore confidence among investors, or whether in fact €10 billion will end up being a drop in the ocean should all the problematic assets turn out to be worth zero.”
Bankia was formed in 2010 in a merger of seven savings banks, or cajas. The government encouraged the consolidation of the cajas, which had spearheaded the financing of Spain’s real estate boom and then found themselves saddled with the bulk of the industry’s nonperforming property loans once the global financial crisis started and the Spanish construction sector collapsed.
Spain injected €4.5 billion into Bankia at the time of its creation to help absorb some of the new company’s losses. As part of the merger, Bankia split off its most problematic real assets into BFA, its unlisted parent company. Bankia itself was floated in July in a €3.3 billion listing that proved to be one of Spain’s few initial public offerings of 2011.
Since then, Bankia’s shares have lost more than a third of their value amid growing concerns about rising loan defaults as Spain sinks deeper into its second recession in three years. Bankia ended last year with provisions of €11.9 billion to cover nearly €32 billion of troubled assets.
Bankia shares fell as much as 6 percent on Monday, to a record low, before closing at €2.375, down 3 percent.
In a report published last month, the International Monetary Fund warned that 10 Spanish banks — which it did not name, but which analysts widely believe include Bankia — needed “swift and decisive measures to strengthen their balance sheets and improve management and governance practices.”
The government is expected to formalize Bankia’s rescue before a cabinet meeting Friday, and could also announce other steps to help troubled banks. The government and the Bank of Spain have been discussing whether to allow banks to transfer their toxic assets to one or more state-backed asset management companies, as Ireland did for its troubled banks in 2009.
Mr. Rato had favored the idea of such a “bad bank,” but healthier commercial banks, led by Santander, have opposed the strategy, fearing that it would hurt their valuations and could distort competition in the Spanish banking sector.
As a former finance minister, Mr. Rato found himself negotiating Bankia’s future with some of his former government colleagues, including Mr. Rajoy and Luis de Guindos, the economy minister, who served as state secretary under Mr. Rato a decade ago.
Mr. Rato proposed as his replacement José Ignacio Goirigolzarri, a former chief executive of BBVA, which, like Santander, derives most of its earnings from outside Spain and so has been partly insulated from the country’s economic woes. Mr. Rato did not elaborate on the reasons for his departure, but noted in a statement that under his leadership, Bankia closed 800 branches and managed to post a profit of €309 million last year.
Mr. Rato and the government “might have had conflicting ideas about how to solve Bankia’s problems,” suggested Mr. Fabregat, the Esade professor.
Bank Chief Steps Down as Spain Considers Rescue - Yahoo! Finance
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