Madrid, May 10 (IANS/EFE): The Spanish government will nationalize the parent company of Bankia, the country's fourth-largest bank, and plans to inject additional capital into the troubled institution, the economy ministry said Wednesday.
The 4.46 billion euros ($5.77 billion) loan parent company BFA received at the end of 2008 from the government is to converted into a 45 percent indirect stake in Bankia, under the aegis of the Fund for Orderly Bank Restructuring, or FROB.
Deeming it "improbable" that BFA will be able to repay the money within the mandated five-year term, the government decided to convert the loan into equity, the economy ministry said.
The nationalization is "a first necessary step to guarantee solvency, the tranquility of depositors and to dispel the markets' doubts about the entity's capital needs", the ministry said, stressing that the government is not going to run the bank.
Bankia's new management team, led by the former CEO of No. 2 Spanish bank BBVA, Jose Ignacio Goirigolzarri, will submit to the central bank a plan to restructure the institution and improve corporate governance, according to the ministry statement.
The government expects Bankia, with roughly 10 million clients, to continue playing a fundamental role in the Spanish banking sector, the economy ministry said.
The ministry's statement came hours after Goirigolzarri reportedly proposed to the BFA board that the 2008 loan be converted into a government stake in the company.
Goirigolzarri took the reins at Bankia Wednesday, succeeding one-time Spanish finance minister and IMF chief Rodrigo Rato, who stepped down two days ago.
The announcement of Rato's resignation coincided with news that the Spanish government and central bank are preparing a new plan to shore up the financial sector.
Bankia, which has massive exposure to Spain's devastated property sector and a large number of delinquent loans, may need as much as 7 billion euros ($9 billion) in public funds to stabilize its position.
Prime Minister Mariano Rajoy's government is set to approve at Friday's Cabinet meeting a package of new measures to complete the overhaul of the Spanish financial system.
The plan is expected to include requirements for banks to increase their loss provisions.
The 2008 global financial meltdown came as Spain was struggling with the bursting of a decade-long real estate bubble. The ensuing slump has led to numerous business failures and pushed the country's jobless rate above 24 percent, representing more than 5 million people out of work.
Nearly half of Spaniards under 25 are jobless and tens of thousands of families have been evicted from their homes after falling behind on their mortgages.