4 Sep 2012

Spain pumps billions into Bankia

9:50 pm on 4 September 2012

Spain says it is urgently injecting €4.5 billion into Bankia, a state-rescued lender still losing billions.

The state-backed Fund for Orderly Bank Restructuring (FROB) said on Monday its governing board had agreed to pump in the capital "with immediate effect" to restore its balance sheet.

Bankia lies at the heart of Spain's financial sector crisis, which led to eurozone members agreeing in June this year to extend a rescue loan to Madrid of up to €100 billion, AFP reports/

The FROB said it would inject the money by subscribing to a capital increase by Bankia, stressing that the decision had been taken in agreement with the European authorities.

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".

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 weakness in the Spanish system.

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

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

The cash injection comes as a fourth Spanish region, Andalucia, asked the government for emergency funds, the BBC reports.

Susana Diaz, a senior politician from the region said it had asked for €1 billion worth of aid to be granted immediately.

Valencia, Murcia and Catalonia have requested bailouts in recent weeks.