Reuters: Financial Services and Real Estate: UPDATE 3-Bankia chief Rato steps down as govt readies bailout

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UPDATE 3-Bankia chief Rato steps down as govt readies bailout May 7th 2012, 14:59 Mon May 7, 2012 10:59am EDT * Bankia plan imminent, chairman steps down * Bankia to integrate parent group BFA after cleanup * Bank could need up to 10 bln euros - report * Gov't to detail wider "bad bank" plan Friday * Spain PM says to use public money only as last resort (Adds Rato departure, new details) By Julien Toyer and Jesús Aguado MADRID, May 7 (Reuters) - Rodrigo Rato stepped down on Monday as chairman of ailing Spanish lender Bankia SA, helping clear the way for a rescue plan that the government hopes will persuade international investors of the country's financial stability. The departure came as Prime Minister Mariano Rajoy opened the door to using public funds to aid the deeply troubled bank sector, after previously ruling out such a move, as Spain tries for a fourth time to overhaul a sector that threatens the country's finances and ultimately the euro zone. The aid for Bankia, saddled with huge toxic loans which put it at the heart of concerns over the cost of a Spanish bank bailout, will include a cash injection, three government, central bank and financial sources said, though they declined to confirm reports Bankia would need as much as 10 billion euros ($13 billion) in capital. Rato, ex-IMF chief and a former minister for the ruling centre-right People's Party who managed Bankia's stock market debut last year, gave no reason for his departure, though the sources had earlier said the bank's bailout would include management changes. Rato said in a statement on Monday he would hand over to Jose Ignacio Goirigolzarri, a former chief executive of major Spanish bank BBVA. Two government sources said state money would be injected into Bankia - an agglomeration of local savings banks or "cajas" - through the purchase of bonds known as CoCos, or contingent convertibles, that can be converted into shares. The manoeuvre may increase Spain's public debt-to-GDP level this year, as the government would have to raise debt to buy the Bankia bonds. But since Bankia has to pay back the CoCos at market rates, it would not be calculated as spending that weighs on the public deficit. HIGHLY EXPOSED Cash from the CoCos would be used to clean up the banking and real estate activities currently held by Bankia's parent group BFA. These activities would then be absorbed by Bankia and BFA would stop operating as a bank, a source with knowledge of the plan said. The move aims to clarify the group's structure and reassure investors the bank - which holds around 10 percent of Spanish deposits and is highly exposed to a devastating property crash - won't push Spain to seek an Ireland-style international bailout to recapitalise its lenders. Rato's statement came after Rajoy said his government would detail its bank reform scheme on Friday. He said he would use state money to help lenders, but only as a last resort. Sources said an announcement on Bankia was expected as early as Monday evening. "The objective is to send a strong signal to the markets and also to the International Monetary Fund and other international partners that the (Bankia) plan is ambitious and strong and will complete our ongoing banking reform," one of the sources said. The Bankia rescue will dovetail with a wider plan to create a so-called bad bank to park and eventually sell off toxic real estate assets held by the banks. The clean-up of Bankia's balance sheet would involve between 5 billion euros and 10 billion in a state-backed loan at a rate near 8 percent, El Pais said. The Bank of Spain and Bankia declined to comment. Spanish banks have a portfolio of troubled real estate assets of 184 billion euros, of which 31.7 billion belong to BFA-Bankia. The group has recognised losses of 37.5 percent or 11.9 billion euros, on these assets. CLEARLY NEGATIVE Bankia's shares fell 3.7 percent to 2.363 euros by 1300 GMT. Spain's country risk, as measured by the spread between yields on Spanish and German benchmark bonds, spiked up to about 429 basis points before coming back to 422 bp. "Bankia shares are clearly falling after the bank confirmed Rato would step down. This is ... negative for Bankia in the short term because they have not explained why and what is going to happen next, besides saying that Goirigolzarri would be his possible successor," said Maria López, banking analyst at Espirito Santo. "This news seems however to be positive for the Spanish banking sector overall, because it seems that a cleanup at Bankia will take place with public money and not be paid (for) by other banks", she added. The Spanish government has been financing some of the cleanup of the sector through yearly contributions that all the banks make to a deposit guarantee fund. Spain's government has passed austerity measures worth more than 40 billion euros for this year in an effort to reduce a public deficit of 8.5 percent of gross domestic product (GDP) last year to 5.3 percent by the end of 2012. Spain has already spent 18 billion euros to clean up the country's financial sector, has forced banks into dozens of mergers (including those which created Bankia) and to recognise more than 50 billion euros of losses on property loans and assets. "If it were necessary to get the credit to save the Spanish financial system I would not hold back from doing what other European Union countries have done, loan them public money, but it would only be as a last resort," Rajoy said on Onda Cero radio in an interview on Monday. Rajoy's first banks reform, announced in February, has failed to convince markets that the banks have recognised sufficient losses after the bursting of a 10-year real estate bubble. His followed two previous bank clean-ups by the Socialist government that was kicked out last year by voters. ($1 = 0.7625 euros) (Additional reporting by Paul Day, Blanca Rodriguez and Robert Hetz; Editing by Fiona Ortiz, Dan Lalor and David Holmes) Link this Share this Digg this Email Reprints

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