Not content with its current fiscal and economic woes, the government of Spain is expected to set fire to as much as €10 billion by taking a large stake in Bankia SA.
The troubled bank is the fourth largest by market value in the country and, due to its toxic real estate assets, has remained a major concern of the Spanish government, having already received more than €4 billion in government aid.
On Monday, Rodrigo Rato stepped down as chairman of Bankia. He was a former minister for the People’s Party and the government worried the rescue would look like a political favour.
Two government sources said state money would be injected into Bankia – an agglomeration of local savings banks or “cajas” – through the purchase of contingent convertible bonds, known as CoCos, that can be converted into shares.
They would then use the cash from the shares to clean up the bank’s activities.
Officials hope that by helping the bank and overhauling the Spanish banking sector, global investors will once again have confidence in Spain and its financial stability.