Spain may recapitalize Bankia on its own, says report

This would allow junior debt holders to avoid bearing part of the rescue cost

Spain is considering pumping its own money into Bankia group to recapitalize the country’s biggest nationalized lender rather than use the emergency portion of a 100 billion-euro bailout from the European Union, Bloomberg has reported two people with direct knowledge of the matter as saying.

This would allow Spain to put off forcing Bankia group’s junior debt holders to bear part of the rescue cost, said the people, who asked not to be identified because the negotiations are private. European officials backed burden sharing in the talks because it would limit the need for public money, they said.

The EU agreed to set aside 30 billion euros of contingency cash as part of the July 24 rescue of Spain’s lenders, although the government said it hasn’t yet officially requested the funds. Prime Minister Mariano Rajoy meanwhile said a decision on Spain’s sovereign rescue is being delayed until it is clear what aid the country will receive under European Central Bank plans to help debt-ridden nations.

An alternative to Spain using its own money to bolster Bankia group is to wait for the first scheduled payments under the financial-sector bailout due in November, borrowing more from the ECB in the meantime, according to the sources. Spain’s cash would only cover some of the 19 billion euros of capital the lender needs, so European money will still have to be used, one of the people said.

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