Spain’s fourth-biggest bank, Bankia, said on Friday it would ask the government for 19 billion euros (US$24 billion) in the largest bank bailout in the country’s history.
The lender, which holds about 10 percent of the nation’s bank deposits, said the request would be part of a recapitalization plan that it approved at a board meeting on Friday and is backed by the government and the Bank of Spain.
“This plan has identified capital needs of 19 billion euros, which will be entirely covered by the state,” it said in a regulatory filing.
The government already sunk 4.5 billion euros into Bankia earlier this month, when it partially nationalized the lender. The state took a controlling 45 percent stake in the financial group by converting a loan for that amount to its parent group, Banco Financiero de Ahorros (BFA), into equity.
The bailout requested by Bankia on Friday will bring to 23.5 billion euros the total amount spent by the Spanish government to rescue the bank, which was formed in 2010 through a merger of seven troubled regional savings banks.
Spanish banks are at the heart of market fears that Spain, the eurozone’s fourth-largest economy, could be forced to seek an international financial bailout.
Earlier this week, Spanish Minister of Economics Luis de Guindos estimated Bankia would need about 7 billion euros to shore up its finances, although he said his government would provide whatever funds were needed.
Bankia shares were suspended from trading on Friday ahead of the bank’s board meeting after newspaper reports said it planned to ask the state for aid to the tune of between 15 and 20 billion euros.
As part of the approved recapitalization plan, BFA will ask the Spanish central bank’s restructuring fund, FROB, to subscribe to a capital increase of 19 billion euros.
Bankia will then launch a 12 billion euro capital increase that will be underwritten by BFA.
“Bankia clients can have absolute confidence that their savings are now safer than ever,” Bankia president Jose Ignacio Goirigolzarri said.
The bank also announced that it had revised its results for last year. Instead of posting a net profit of 309 million euros, it recorded a net loss of 2.979 billion euros due to write-downs made in its loan portfolio.
Bankia had problematic property assets amounting to 31.8 billion euros at the end of last year, according to Bank of Spain figures.
Standard & Poor’s on Friday cut its credit ratings for five Spanish banks, including Bankia and BFA. It downgraded Bankia to “BB+,” one notch into junk status, from “BBB-” and reduced its rating for BFA, which was already in junk status, to “B+,” four notches into junk territory, from “BB-.”
Standard & Poor’s also cut its rating for Bankinter, Banco Popular and Banca Civica.
IG Markets analyst Daniel Pingarron said the bailout “will not change things very much. What will happen is the FROB funds will run out, the fund will have to be replenished with public debt and that does not sent a message of confidence [to markets].”