Nationalization of Bankia

13 May 2012

Last week, the Spanish government intervened and nationalized the Spanish bank Bankia.

In 2010, due to government-initiated bank reforms, Bankia formed as a merger of seven Spanish banks--with the majority of the shares held by Caja Madrid. As of this year, Bankia was the 3rd (or 4th depending on the source) largest bank in Spain (following Santander and BBVA) and held the majority of real estate assets (around 38 billion euros). These real estate assets are no doubt a part of the root of the problem for the bank. When the Spanish real estate market crashed, the bank ended up with a lot of debt.

However, in late-March, Bankia approached the Spanish government about a bail-out. Originally, the government denied the request--telling Bankia that they need to have more measures in place.

It was announced on Wednesday that the Spanish government will give Bankia the bail-out they have requested (of 4.5 billion euros)--gaining the Spanish government a 45% majority share in the bank.

Since the partial-nationalization of Bankia, the Spanish government has taken other measures to try to assure people (probably also to placate the rating companies) that they can trust in the stability of the Spanish economy. The Spanish government now requires that all banks have an extra 30bn euros (in addition to the 54bn euros the government required of banks in February) so they can cover bad loans.



*Disclaimer: I'm not an economist, and so I'm only explaining the situation to the best of my understanding.