Spain nationalises Bankia to aid ailing sector

Rodrigo Rato
Rodrigo Rato resigned on Monday

One of Spain’s biggest banks, Bankia SA, was effectively nationalised late last night (Wednesday) after days of market turmoil over bad loans and struggling banks.

The bank’s executive chairman, Rodrigo Rato, resigned on Monday leaving a bank with 32 billion euros in distressed property assets.

The state have taken a 45% stake in the bank which was only created two years ago resulting from a merger of seven struggling savings banks. The bank will take a 4.47 billion euro loan from the Spanish bailout fund which will be converted into shares that will be owned by the state.

Prime Minister Mariano Rajoy said that the Spanish banking sector was “safe” and that he would implement further measures to strengthen and protect the industry on Friday.

Bankia holds 10% of deposits in Spain’s banking system, making it the largest bank to be ‘rescued’  by the government in recent years.

“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.

Spaniards seem to accept the governments assurances and there has not been, so far, any sign of deposit runs in the Spanish banks.

This is “a necessary first step to ensure solvency, the tranquility of the depositors and to dispel the doubts of the markets on the capital needs of the entity,” Spain’s finance ministry said.