Bankia, which holds 32bn euros (£25.7bn) in distressed property assets and whose boss has resigned, will have a 4.47bn-euro loan by the Spanish bailout fund converted into shares.

The state fund will emerge with a stake in the bank of 45%.

Earlier, Spanish stocks fell by 3% and government bond yields rose above 6%, a level seen as unsustainable.

“The new management of Bankia will have to submit, as soon as possible, a fortified clean-up plan that will place it in a position to address its future with every guarantee of success,” the Spanish central bank said.

Bankia has the industry’s largest exposure to the property market, which burst spectacularly and has saddled its banks with bad debt.

Spain’s fourth-biggest bank was only created in 2010 from a merger of seven struggling savings banks.

‘Controversial’

The BBC’s business editor Robert Peston said: “The partial nationalisation will be a controversial operation, because it will lead to huge losses for many thousands of Spanish investors, who bought shares in Bankia and provided it with loan capital when it was listed on the stock market last year.”

Many are worried about the level of bad debt that Spanish banks have, and fear that Spain will need a bailout.

The central bank added: “Bankia is a solvent institution that continues to operate on an absolutely normal footing. Its customers and depositors have no cause for concern.”

The current Spanish government, elected in December, has so far insisted that no public money would be used to rescue banks.

But Prime Minister Mariano Rajoy conceded on Monday that “if it were necessary to prompt lending”, he would do so “as a last resort”.

On Monday, the executive chairman of Spain’s Bankia resigned

source:http://www.bbc.co.uk/news/business-18014077

The European Commission’s spring forecast confirmed its prediction of a 0.3% contraction in 2012 in the economies of the 17 countries that use the euro.

It predicted growth of 1.0% for the eurozone in 2013.

European Commissioner for Economic and Monetary Affairs Olli Rehn said “a recovery is in sight” for the eurozone.

But he added: “The economic situation remains fragile, with still large disparities across member states.”

For all 27 countries in the EU, the Commission is predicting zero growth for 2012, with 1.3% growth next year.

Growth figures for the first quarter of 2012 will be released by the European statistics agency Eurostat on Tuesday 15 May.

“Economic activity in the EU contracted in the last quarter of 2011 and is estimated to have also done so in the first quarter of 2012,” the Commission said in its statement.

Two consecutive quarters of economic contraction are generally taken to indicate a recession is underway.

But the Commission believes that a gradual recovery will start in the second half of the year.

‘Longing for the turnaround’

Among the individual member states, the only one predicted to see an economic contraction in 2013 is Spain, which is forecast to decline by 0.3%.

The Commission predicts Spanish unemployment will continue to be the highest in the EU, with the jobless rate hitting 24.4% this year and 25.1% in 2013.

The unemployment rate in the eurozone is forecast to be 11% this year and in 2013, and 10.3% in the EU for both years.

The Commission describes Greece as “an economy longing for the turnaround”.

It predicts a contraction in the Greek economy of 4.7% this year and zero growth for 2013, with unemployment at 19.7% in 2012 and 19.6% the following year.

“The recovery, which was previously expected for this year, will be further delayed with, at best, an insignificant improvement in activity in 2013,” the Commission said.

source:http://www.bbc.co.uk/news/business-18033974

the Spanish government is to force its banks to take on an extra 30bn euros ($39bn; £24bn) of capital to cushion themselves against loans going bad.

The banks will have to raise the money or borrow from the government at an annual interest rate of about 10%.

The government said it was determined to take the necessary measures to restore credibility and trust to the financial system.

Earlier in the week, the Spanish government took a 45% stake in Bankia.

Bankia had a 4.47bn-euro loan by the Spanish bailout fund converted into shares.
Independent valuation

The Spanish government has already forced banks to make provisions of 54bn euros to cover bad loans.

If banks have to go to the government to borrow money, the loans will be structured so that they could ultimately be converted into partial state ownership.

The government is now appointing independent auditors to value the banks’ property assets.

A housing boom and bust has left many small lenders holding mortgage debt that may not be repaid.

The banks will also be forced to put some of their mortgage books into separate companies.

The government said it would also be liberalising rules for property rental to make it easier for the banks to sell their portfolios of property debt.

The Madrid stock market fell more than 3% after the reforms were announced.
Deficit targets

Earlier in the day, the European Commission had warned that “the necessary adjustment of bank balance sheets” would make it harder for individuals and businesses to borrow money, which would constrain the economy.

It predicted that the Spanish economy would contract by 1.8% in 2012 and by 0.3% in 2013.

The Commission also said that Spain’s budget deficit would be 6.4% this year and 6.3% next year.

But Spain’s economy minister Luis de Guindos said that the country would meet its target of a 5.3% deficit this year and 3% in 2013.

He added that the money to be loaned to banks would have no effect on the deficit.

The banking sector was cited by the ratings agency Standard & Poor’s when it downgraded Spain’s debt by two notches at the end of last month.

Figures from the Bank of Spain show that at the end of 2011, banks held 184bn euros worth of problematic real estate assets, including loans and seized property, accounting for 60% of their property portfolios.

source:http://www.bbc.co.uk/news/business-18031324