Bankia Says Spain’s New Rules Call for $4.5 Billion Provisions
February 11, 2012, 2:49 PM ESTBy Charles Penty
Feb. 10 (Bloomberg) -- Bankia SA, Spain’s third-biggest lender, will make total provisions of 3.4 billion euros ($4.5 billion) to meet new rules on recognizing real-estate losses and won’t need to merge to comply with the government order.
The lender, formed from the merger of seven Spanish savings banks, has already taken charges of 1.14 billion euros, leaving 2.26 billion euros of provisions to make this year, it said in a statement today in Madrid.
Bankia’s 2011 profit was 309 million euros, short of the 376.5 million-euro average estimate in a Bloomberg survey of four analysts, while bad loans as a proportion of the total climbed to 7.63 percent from 7.09 percent in September. It will offer a “flexible” dividend, Chairman Rodrigo Rato said.
Spanish banks are being forced by government rules announced on Feb. 2 to recognize more losses on the real estate on their balance sheets, putting pressure on lenders such as Bankia that have limited operating profit to cover the charges.
“Bankia has been a focus for this whole process from the start -- the cleanup is very large,” said Ricardo Wehrhahn, a partner at Roland Berger Strategy Consultants in Madrid, in a phone interview.
Bankia can meet the requirements without aid or mergers, Rato said today, and the lender has the capacity to generate 8 billion euros of capital from asset sales, optimization of risk- weighted assets, earnings and conversion of Tier I and Tier II instruments.
The provisioning burden for the Bankia group has led to speculation that it may be forced to seek a merger to absorb losses. El Mundo reported Feb. 8 that Bankia and CaixaBank SA, Spain’s fourth-biggest bank, had discussed a combination. Rato denied on the same day as El Mundo’s report that the bank had been in talks with CaixaBank.
--With assistance from Emma Ross-Thomas in Madrid. Editors: Frank Connelly, Dylan Griffiths
To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net
To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net
