Valencia bank on the verge of nationalization

Banco de Valencia has been suspended from trading on the stock exchange - a move many financial analysts believe could be the last step before a government takeover, sources close to the operation said Monday.

The CNMV stock market watchdog halted trading after Banco de Valencia's stock closed 0.87 cents a share on Friday.

Regulators are studying the possibility of intervening in Banco de Valencia, a regional financial institution that has been gutted by the collapse in Spain's real estate and construction industries, sources close to the operation said Monday.

The move comes after the CNMV stock market watchdog suspended Banco de Valencia from trading after the bank's stock closed at just 0.87 euros a share on Friday.

On Monday, officials at the financial entity were waiting to see what action the Bank of Spain would take to help the bank meet its obligations. As with many troubled Spanish lenders, Banco de Valencia has been hard hit by the crisis in the real estate sector. Earlier this year, the Valencia region-based CAM savings bank was taken over by the Bank of Spain.

Banco Financiero de Ahorro (BFA), the holding company of Bankia that owns 30 percent of Banco de Valencia's stock, hasn't ruled out government intervention through the Orderly Bank Restructuring Fund (FROB).

For his part, Enrique Verdeguer, the Valencian government commissioner for economy, industry and trade, said that he was "in permanent contact with the Bank of Spain, as well as with Bankia, to find the most appropriate solution as soon as possible."

Speaking to reporters at the Valencia parliament, Verdeguer said he wanted "to calm the situation" and that "all possibilities are being looked at, including FROB intervention or through the incorporation of another private entity."

Up until June 30, seven percent of Banco de Valencia's loans were listed as bad and 74 percent on the verge of going into default. It holds some 3.1 billion euros in credit related to the real estate and construction sectors.

Banco de Valencia president José Luis Olivas suddenly resigned about two weeks before regulators issued orders for the bank to come up with an immediate recapitalization plan.

It is not known exactly how much Banco de Valencia needs to recapitalize. Some reports say the regional entity, which has branches in Madrid, could need up to 800 million.

Because BFA is its reference stockholder, it has the legal obligation to pump money into the bank by raising it through its own resources or selling off stakes in other companies. But if BFA decides not to pump any more money into Banco de Valencia, then the FROB would intervene.

In July, the government-backed fund intervened in Caja Mediterráneo (CAM) after regulators detected that the savings bank was on the verge of collapse. Last month, Novacaixagalicia was nationalized so that the government could inject money to meet solvency requirements.