Bankia: We'll Treat Aid as Investment

By Harold Heckle

MADRID -- Troubled Spanish lender Bankia will treat the 23.5 billion euros ($29.5 billion) in state aid it will receive in the country's biggest-ever bank bailout as an investment meant to make a profit for the Spanish government and not as a loan, its president said Sunday.

Jose Ignacio Goirigolzarri appeared to be trying to reassure markets after the Spanish media questioned what he had meant by saying a day earlier: "We don't need to talk about giving any of it back."

In a statement Sunday, he said Bankia's obligation is "not to return that capital but to be able to generate value and profitability for that contribution."

Goirigolzarri said the Spanish state would decide "when it deems appropriate, and through the mechanism it chooses," when to sell its stake in Bankia to obtain the highest possible price to benefit taxpayers.

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Bankia is stuck with 32 billion euros ($40 billion) in toxic assets on its books from loans in the property sector before Spain's real estate bubble burst.

The Bank of Spain has estimated that the country's banks are sitting on some 180 billion euros ($233 billion) in assets that could cause them losses.

The government fears the cost of rescuing the country's vulnerable banks could overwhelm its finances, which are already strained by a double-dip recession and an unemployment rate of nearly 25%, and force it to seek a rescue by the rest of Europe -- already preoccupied by crisis-hit Greece.

Currently the government is enduring high interest rates on Spain's benchmark 10-year bond, which was at 6.29% Friday. Anything above 7% is considered unsustainable in the long run.

A few weeks ago, the conservative government of Prime Minister Mariano Rajoy was maintaining it felt confident there would be no need to inject more public money into Spanish banks.

Even at this month's NATO summit in Chicago, Rajoy dismissed comments from the new French President Francois Hollande that Spain's banks might need money from European recapitalization funds to stay in business.

AP

The Bankia bank headquarters as seen in Madrid, Monday May 7, 2012.

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