Wednesday, September 5, 2012

Spain set to inject 6b euros in bank fund "within days"

MADRID: Spain said Tuesday it will pump six billion euros ($7.5 billion) "within days" into its bank restructuring fund, which is coming to the rescue of troubled lender Bankia.

The news emerged a day after the state-backed Fund for Orderly Bank Restructuring (FROB) said it would act immediately to inject 4.5 billion euros into money-losing Bankia.

"It will all be done within days," said a spokeswoman for the economy ministry.

The boost to the FROB's finances had been authorised in a February decree by the ministry. "Until now there has been no need to do it. It is being done now because there is a need," she said.

The Spanish government would boost the FROB capital either with cash or public debt securities, the spokeswoman said.

The FROB said Monday it had agreed to pump capital into Bankia "with immediate effect" to restore its crippled balance sheet.

Bankia lies at the heart of Spain's financial sector crisis, which led to eurozone members agreeing in June to extend a rescue loan to Madrid of up to 100 billion euros.

The FROB said it would inject the money by subscribing to a capital increase by Bankia.

The money was just an advance on a broader capital injection to be made by the FROB into Bankia under the eurozone deal, it said. The size of the full injection would be decided in "coming weeks", it said.

Created in 2010 from a merger of seven troubled regional savings banks, and then listed on the market in July 2011, Bankia's finances exposed serious weaknesses in the Spanish system.

In the first half of this year it lost 4.45 billion euros, prompting the FROB to promise rapid action. A year ago, it was reporting first-half profits of 205 million euros.

In May, the group was nationalised after saying it would need a total 23.5 billion euros to salvage its balance sheet, loaded with risky loans that had turned sour after the 2008 property crash.

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