Bank of Spain proposed nationalizing Bankia, minister says

Economy Minister Luis de Guindos has stated that it was the Bank of Spain who proposed that BFA-Bankia be nationalized and that the government did not request any concrete plan to recapitalize the bank nor demand the departure of its then-chairman, Rodrigo Rato.

De Guindos made the assertion in a written declaration to High Court Judge Fernando Andreu, who is heading an investigation into events surrounding the formation of BFA-Bankia from the merger of seven savings banks, its listing, subsequent collapse and nationalization.

De Guindos’ statement contradicts that of the former governor of the Bank of Spain, Miguel Ángel Fernández Ordóñez, who last month claimed the central bank “totally lost control” of Bankia when the Economy Ministry demanded Rato come up with a new recapitalization plan, different from that approved by the financial sector supervisor.

The minister explained in his statement that on May 8, a day after Rato stood down as chairman of Bankia, Fernández Ordóñez sent him an email suggesting the voluntary conversion of preferred shares that the state Orderly Bank Restructuring Fund (FROB) held in Bankia’s parent BFA into common stock. De Guindos went on to claim that the former governor conveyed to him in the email that the Bank of Spain’s supervisory department had already told BFA-Bankia that it was advisable that its management approve the conversion that very same week.

“This conversion eventually took place, sparking the nationalization of the bank,” de Guindos said, adding that his department “did not ask for a concrete plan” to clean up Bankia’s balance sheet and that no such plan was presented for approval to the Economy Ministry. The minister also said that the “emergency” at Bankia was a matter of concern for the government and the Bank of Spain, and that the two held talks with the bank on formulating a strategy to address the situation in order to “put an end to the alarm and find a definitive solution” to the problem.

During these talks, “there was no discussion of a concrete plan,” De Guindos stated, adding that all of the multilateral agencies highlighted the need to act “rapidly, transparently and conclusively” to restore confidence in the bank. In light of the difficult situation at Bankia, sparked in large part by its heavy exposure to the flagging real estate sector, the European Commission, the FROB and the Bank of Spain believed the bank needed to restructure, and that one of the most significant problems facing it was Banco de Valencia, which was also subsequently nationalized before being sold off.

De Guindos said he met with Rato, a former IMF managing director and economy minister, on a number of occasions in April of last year and that the then-chairman of Bankia presented various plans for the bank to merge – one of which was at an advanced stage, but eventually fell through. Thereafter, Rato told De Guindos that he was planning to take measures to ensure the viability of Bankia as a stand-alone bank, including seeking further assistance from the FROB. “At no moment did I ask for Rato to leave,” the minister said, although he acknowledged that a common concern of the international agencies was the structure of the bank’s corporate governance.

De Guindos said he found out that Rato was planning to hand in his resignation in a call he received from him on May 7, insisting he did not know the reasons behind this. In the same conversation, he said Rato told him he was going to propose José Ignacio Goirigolzarri as the new chairman of Bankia and asked for the minister’s support.