Rodrigo Rato’s exit from Bankia (BKIA) signals Spain is heeding part of the International Monetary Fund’s advice for the banking industry as the government weighs a second bailout of the lender.
Rato, a former IMF managing director, said yesterday he’d quit the banking group with the biggest Spanish asset base and proposed Jose Ignacio Goirigolzarri, former chief operating officer of Banco Bilbao Vizcaya Argentaria SA (BBVA), as executive chairman.
The change in management is part of a government plan for Bankia that may include injecting funds into the lender via contingent-capital securities, an Economy Ministry official said yesterday. Bankia fell as much as 9.2 percent in Madrid trading today after El Confidencial reported that Spain will nationalize Bankia and its parent BFA on May 11. A ministry spokeswoman declined to comment on the report.
Spain has struggled to douse speculation it will need an international rescue to shore up lenders such as Bankia, the banking group with the most Spanish real estate on its books, after the economy fell into a recession linked to its property crash. The IMF last month singled out Bankia in a report on Spanish lenders, saying that the largest of the country’s vulnerable banks should “especially” take swift steps to improve management and strengthen its balance sheet.
“In some way this is really all to the good because it means progress is being made,” said Javier Diaz-Gimenez, an economics professor at IESE business school in Madrid. “Whatever way they choose to take the Bankia situation forward, there’s now going to be a technical guy in charge and not a politician.”
With about 300 billion euros ($392 billion) in assets, the Bankia group is key to Rajoy’s efforts to overhaul the industry, said Diaz-Gimenez. Its assets are equivalent to almost a third of the Spanish economy and it held 38 billion euros of real estate at the end of 2011.
Spanish Defense Minister Pedro Morenes, in an interview with TVE today, referred to a government “intervention” in Bankia. “I haven’t come to this interview to explain the intervention of Bankia but seeing as you ask, I have no problem saying that the decisions taken by the government are taken in good faith and with full loyalty to its mission,” he said.
Shares in Bankia were down 14.5 cents, or 6.1 percent, to 2.23 euros by 9:53 a.m. in Madrid, bringing to 40 percent the loss since the company’s listing on the stock market in July. Spain’s 10-year bonds fell, increasing the yield to 5.75 percent.
“Goirigolzarri was a very good leader and administrator at BBVA and he is very well regarded,” said Inigo Lecubarri, who helps manage about $300 million at London-based Abaco Financials Fund. “You couldn’t ask for someone better qualified to lead a Spanish bank that’s in trouble.”
Goirigolzarri, 58, served as president and chief operating officer for eight years at BBVA, Spain’s second-largest bank. He spent 16 years on the board and stood down in 2009.
Rato, 63, who was economy minister when the ruling People’s Party was last in power from 1996 to 2004, didn’t say what he’ll do next. Luis de Guindos, the current economy minister, served under Rato as deputy economy minister in the former People’s Party-led government of Jose Maria Aznar.
Rato became chairman of Caja Madrid, the savings bank in the People’s Party-controlled region dominated by Spain’s capital city, in 2010 and led its merger with six other lenders to form Bankia. The group took 4.5 billion euros of public support in 2010 in the first phase of Spain’s efforts to shore up lenders reeling from the property-market collapse.
It split off the most problematic real-estate assets into BFA, the unlisted parent, where the government’s preference shares were also parked. Freed from the worst assets, Bankia sold shares to the public, including local retail investors, in July, in a move the Bank of Spain hailed as “very positive.”
“If the Bankia situation is not resolved properly, it is going to put in question the entire financial reform in Spain,” said Lorenzo Bernaldo de Quiros, an economist who served on a panel that advised Rato when he was minister.
In its report on the Spanish banking system on April 25, the IMF said it was “critical” that vulnerable lenders, “especially the largest one,” take swift measures to strengthen their balance sheets and also called for improvements to “management and governance practices.” It also said more public funds may be needed to shore up banks.
The government may inject 7 billion euros into BFA-Bankia as part of the nationalization, El Confidencial reported, citing people in the banking industry it didn’t name.
Prime Minister Mariano Rajoy, battling to restore confidence in banks, yesterday opened the door to using public funds to shore up the industry.
“The last thing I want to do is lend public money, as has been done in the past, but if it were necessary to get the credit to save the Spanish banking system, I wouldn’t renounce that,” he said in an interview with radio station Onda Cero.
Rajoy also said that the Cabinet will pass a decree on May 11 aimed at bolstering confidence in the industry. He didn’t give details, saying only it was connected to the government’s plan to allow lenders to put assets they have already provisioned for into separate asset-management vehicles.
The decree will be the second for the industry since February, when the government gave banks a year to set aside 53.8 billion euros in real-estate provisions and buffers. That Feb. 3 decree also allows for the state’s bailout fund to buy contingent capital securities, known as CoCos, in struggling lenders, funded by the Treasury.
Rajoy said any use of public funds wouldn’t affect the deficit, which is the third largest in the euro region. Rajoy, who said in the election campaign he would avoid using taxpayer funds to bail out lenders, is suffering from a slump in popularity amid budget cuts.
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