Bloomberg News

Bankia Posts $9.1 Billion Loss as EU Prepares Bailout Funds

October 26, 2012

Bankia (BKIA) group, the lender whose nationalization pushed Spain toward a European bank bailout, announced a 7.05 billion-euro ($9.1 billion) loss, as European officials said the country may get its first rescue funds soon.

Bankia said the nine-month loss compared with a pro-forma profit of 295 million euros a year ago, as deposits fell 13 percent from December and lending dropped 10 percent. It posted results as the European Union and European Central Bank said the bailout is “on track.”

Spain, which asked for the 100 billion-euro bailout in June and has started implementing the conditions of the agreement, has yet to receive any cash from the European rescue fund. It sought help a month after nationalizing Bankia as the government’s access to capital markets narrowed, and Prime Minister Mariano Rajoy is under growing pressure to request a second international rescue, this time for the government.

“Overall, the findings of this mission point to a successful program whose implementation is on track,” the ECB and the European Commission, the EU’s executive, said in a joint statement today.

Acute Challenges

EU authorities completed the first review of Spain’s financial-sector bailout. Spain’s banking industry faces “very acute challenges” that “warrant decisive policy action,” according to the statement. Authorities reviewed a broad range of financial-sector conditions and found that Spain is “well advanced” in its preparations to qualify for aid payments, the ECB and the commission said in the statement.

Bankia, the fourth-biggest lender with an asset base almost a third the size of Spain’s economy, said client deposits and commercial paper declined 13 percent in the nine months through September. It made provisions of 11.5 billion euros over the nine months, wiping out its earnings, and the lender said it’s now completed 75 percent of the provisioning effort ordered by government decrees.

Legislation passed by Rajoy is pushing banks to recognize losses and sell off real estate that piled up on their books as the collapse of the property boom prompted a surge in defaults. As part of the bailout agreement, Spain will set up a so-called bad bank to lift soured assets off banks’ books. The structure of that vehicle and the prices it will pay banks for their toxic assets is set to be announced in the coming days.

Bad Bank

European authorities have reached an agreement with Spain on the size, design and functioning of the future Asset Management Company, a “cornerstone” of the rescue package. It is on track to be operational by Dec. 1, according to the statement.

The International Monetary Fund today urged a push to get the bad bank working by December. The Washington-based lender said Spain has taken important steps to revamp its financial system and needs to maintain momentum.

Spain’s banking stress tests, which were a condition of the bailout, proved to be a sound guide for identifying banks that are short of capital, the IMF said. It said capital shortfalls need to be made up quickly and “non-viable banks promptly wound down,” while avoiding mergers that don’t make sense.

Credit Supply

While financial conditions have improved since the ECB made its pledge in September to buy Spanish bonds, the economy and banks still “face headwinds,” the IMF said. It urged Spain to avoid placing too many constraints on credit supply across the financial system.

The EU will review the recapitalization and restructuring plans of Spanish banks in “coming weeks,” Economic and Monetary Affairs Commissioner Olli Rehn said in a separate statement. This “should pave the way for the first disbursements for entities in need of public support,” he said.

Rehn said the bank aid is one of three elements needed to address the crisis in Spain. Budget cuts and economic reforms also need to continue, he said, adding that he is “confident in the commitment of the Spanish government to proceed.”

EU authorities looked at Spain’s progress on issues including “the enhancement of the credit registry, the improvement of banks’ transparency, the further development of non-banking financial intermediation and the strengthening of the governance of former savings banks,” the EU and ECB said.

The IMF is due to send a final report to the EU and other authorities in November. It will produce its second financial- sector monitoring report in the first quarter of 2013.

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net; Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net


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