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Bankia gets state rescue

September 13, 2012

Stricken Spanish lender Bankia has been thrown a multi-billion euro lifeline from the Spanish state after reporting a huge loss for the first half of 2012. The bank is at the heart of Spain's ongoing mortgage crises.

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Image: REUTERS

Bankia had received 4.5 billion euros ($5.7 billion) in the form of short-term government debt securities, Spain's state-backed Fund for Orderly Bank Restructuring (FROB) announced Thursday.

The move was needed "urgently," FROB said in a statement, and had come after Bankia reported a loss of 4.45 billion euros in the first half of 2012, which was a dramatic deterioration from a net profit of 205 million euros in 2011.

After the financial boost, Bankia said it had a capital base of 4.528 billion euros - a figure which suggests that the lender's capital base had dwindled to just 28 million euros before the rescue.

Bankia was created in 2010 in a merger of seven troubled regional Spanish banks and listed on the Madrid Stock Exchange in 2011. However, the bank had to be nationalized in May 2012 in the wake of the crash of the Spanish property market, which left Bankia short of 23.5 billion euros to salvage its balance sheet.

FROB said the financial lifeline was thrown to the lender on the same day the fund had received a capital injection worth 6.0 billion euros from the government in Madrid.

Madrid provided the capital as an advance payment on a 100-billion-euro bank rescue loan to Spain agreed by eurozone leaders in June.

The European Commission in Brussels earlier approved the injection into Bankia, under the condition that its parent company, Banco Financiero de Ahorros, comes up with a restructuring plan for the bank by November this year.

uhe/tj (AFP, Reuters)