Spanish Government Bails Out and Takes Over Bankia After Bad Loans Crisis


 

As news that Spain’s fourth-largest bank, Bankia, has more than 30 billion euros of exposure to troubled loans, the government of Mariano Rajoy stepped in and bailed out and took over the troubled bank. On Wednesday, the Spanish government took control of Bankia’s parent company, BFA, by converting a 4.5 billion euro loan into equity, thus giving the state a 45 percent stake in the bank. The government will also likely give Bankia several billion euros more in an effort to stabilize the troubled bank, but will it be enough?

Many analysts say, probably not. In fact, if this move causes investors to panic and world markets to fall, it could put into question Spain’s stability, as well as lead markets to believe Spain will need a big bailout. A snowball effect, at its absolute worst, could then cause the euro to crash.



Mariano Rajoy is also not likely to get the support of the Spanish people with this latest move. He has always promised he would not use public money to bail out banks but, as with all his other broken promises, he now has. At the same time, he has also cut funding for education and health in Spain, a fact many Spaniards are already furious about, and that was before they learned yet more of their money is going to help a bank in crisis.

It’s also highly unlikely Spain’s other troubled banks are going to be able to fight their way out of the mess many of them are in, and more government bailouts may be necessary in the coming few months.

With Spain also suffering one of the world’s highest unemployment rates, with almost 25 percent of Spanish workers unable to find a job, Spain’s real estate sector is likely to fall further, thus impacting Spain’s banks and putting even more in jeopardy as yet more people default on mortgages and loans.

Meanwhile, Bankia shares fell by over 7 percent yesterday after the announced government takeover.

It’s not looking good for Spain’s banks, Mariano Rajoy, or Spain as a whole.

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