Spanish bank to seek 19 billion U.S. rescue loan

Bankia SA, Spain's fourth largest bank, saw its share trading suspended on Friday (May 25th). The bank is expected to request more than 19 billion U.S. from the government.

Bankia is faced with many bad real estate debts but it also holds 10 per cent of Spain's bank deposits. The bank was unable to raise enough capital to deal with its burgeoning losses from bad real estate debt. A real estate boom in Spain crashed in 2007 and 2008 and banks are still suffering from the bad loans made at the time.

The government has already spent 4.5 billion euros to keep the bank afloat and partially nationalized it. The entire rescue package may cost 20 billion euros. This will force Spain to go to the markets when borrowing costs are already high.

The expenditure of money to rescue banks is causing some anger among the populace when Spain is being forced to cut spending on hospitals and education to meet EU austerity demands. Many think that the plan by the Conservative government of Mariano Rajoy to try to bring the deficit down to 5.3 per cent of GDP is doomed to failure. Shares in Bankia have fallen 34 per cent on the Madrid stock market since May 7. Perhaps Spain will see more withdrawals of funds from its banks. For much more see this BNN article.