Spain is
considering pumping its own money into Bankia group to re-capitalize the
country’s biggest nationalized lender rather than use the emergency
portion of a 100 billion-euro ($125 billion) bailout from the European
Union, two people with direct knowledge of the matter said.
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, the people said.
“The EU is telling the Spanish government that if they don’t
produce this haircut, the money will have to put up by” Spain, said
Alejandro Ruyra, an analyst at Kepler Capital Markets in Madrid,
speaking on Bloomberg TV’s The Pulse. “The question is, does the Spanish
government have that much money?”
The EU agreed to set aside 30 billion euros of contingency cash as
part of the July 24 rescue of Spain’s lenders as they hemorrhage
deposits, though 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’s 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 people. 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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