Bankia Reports New Rules Call for €5.1 Billion Provisions

 

Spain's Bankia group said a government-ordered clean-up of its real estate holdings would require €5.1 billion in provisions and extra capital, and that it can meet the demands alone.

"Bankia has sufficient capacity to meet the new requirements in the time allowed, that's to say before end 2012, with total autonomy," Chairman Rodrigo Rato said at a news conference in Madrid today. The bank wouldn't need to enter into mergers or take more state aid to do so, he said.

Bankia, Spain's third-biggest lender, and its parent company need to take another €2.26 billion in provisions this year after absorbing €1.14 billion in 2011, the lender said in a statement today. The rules also require the group to set aside a capital buffer of €1.67 billion euros. Spanish banks are being forced by government rules announced on Feb. 2 to recognize more losses on their real estate assets, putting pressure on lenders such as Bankia to cover the charges.

Addressing reports that the provisioning rules might trigger a merger between Bankia and CaixaBank, Spain's 4th biggest lender, Rato said he knew of no plans for such a deal and the bank could continue on its own. The lender can generate €8 billion euros of capital from asset sales, recalibrating its risk-weighted assets, earnings and exchanging securities for shares to bolster capital, it said.

Debt Exchange

Banco Financiero y de Ahorros, Bankia's parent, said in a filing today that it would offer to exchange as much as €1.28 billion of preferred shares and subordinated debt for Bankia shares. As many as 454 million Bankia shares will be issued for the exchange, BFA said, equivalent to as much as 26% of the shares in circulation.

"In this regulatory environment there's no doubt that we have to raise our capital levels," Rato said. "Will it produce a dilution? Probably yes, but it will also make the company stronger."

Bankia is looking at options to buy other lenders, including Unnim, a bank formed from a merger of savings banks in Catalonia that was taken over by the government last year.

The law allows lenders that have received state aid in the way the Bankia group has done to take part in such transactions, Rato said. An economy ministry official told reporters on Feb. 6 that all mergers sparked by the real estate cleanup must be viable and investors may be skeptical of transactions in which a bank that has received public aid buys another.

Bankia's 2011 profit was 309 million euros, short of the €376.5 million average estimate in a Bloomberg survey of four analysts, while bad loans as a proportion of the total climbed to 7.63% from 7.09% in September. It will offer a "flexible" dividend, Rato said on Friday.

"Bankia has been a focus for this whole process from the start - the cleanup is very large," said Ricardo Wehrhahn, a partner at Roland Berger Strategy Consultants in Madrid, in a phone interview.