Thursday, May 24, 2012

Bankia bailout bill shows Spain committed to funding black hole

According to the Guardian, the Bankia bailout is now at 15 billion euros and growing.

Just like Ireland, the Spanish government has shown just how little understanding it has of the true condition of its banks.  The government did this by effectively promising to fill a black hole and keep its banks with positive book capital levels.

The only question now is which will increase faster:  the size of the bailout of the Spanish banks or the run on the banks by Spanish depositors when they realize that Spain is going to follow Greece and forcibly re-denominate its currency.

The spiralling cost of bailing out Spain's fourth largest bank, Bankia, rose further on Thursday night after sources close to the bank said it would ask for more than €15bn (£12bn) from the government on Friday. 
Bankia, partially nationalised by the government earlier this month, is the weak spot in Spain's fragile banking system where loan losses stemming from a 2008 property crash threaten to push the country into seeking international assistance....

Two weeks ago, the bank received a €4.5bn loan that the state turned into a 45% shareholding in Bankia's parent company, BFA. That move gave the state control over BFA and Bankia, setting up a nationalised bank that some observers predict could absorb other troubled Spanish savings banks. 
Spanish authorities have always claimed to be giving minimum figures for Bankia's needs, but the latest figures came amid reports of strong disagreements between the government and the bank about how much it would receive....
Loans to property developers are the biggest problem, with Bankia and other former savings banks laden by toxic assets that include unsold housing developments and worthless building land. Many of those loans have been refinanced in order to save the banks from admitting to the losses....
Analysts believe a further €50bn-100bn is needed to protect Spanish banks against upcoming mortgage defaults and bad loans to small- and medium-sized businesses as the country heads back into a double dip recession.

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