Spain nationalizes No. 4 bank as crisis deepens

Rodrigo Rato stepped down as chairman of Bankia on Monday Photo: Reuters



The forced rescue was ordered by premier Mariano Rajoy after auditors Deloitte refused to sign off the bank's books, amid allegations of €3.5bn (£2.8bn) of inflated assets. Half of the bank's €37bn of property exposure is deemed "problematic" by regulators.


The lender has asked for €4.5bn in loans, converting the cash into ordinary shares. The Spanish government holding 45pc of the bank in return. Bank of Spain has also demanded Bankia dispose of assets as part of the rescue.


"The Spanish have denied until now that there was any need for fresh capital so it comes as a surprise. It wasn't intended, and that is a worry," said Guy Mandy, credit strategist at Nomura.

Rescue of Banks Hints at Nationalization

By EDMUND L. ANDREWS

Published: January 15, 2009

WASHINGTON — Last fall, as Federal Reserve and Treasury Department officials rode to the rescue of one financial institution after another, they took great pains to avoid doing anything that smacked of nationalizing banks.

They may no longer have that luxury. With two of the nation’s largest banks buckling under yet another round of huge losses, the incoming administration of Barack Obama and the Federal Reserve are suddenly dealing with banks that are “too big to fail” and yet unable to function as the sinking economy erodes their capital.

Particularly in the case of Citigroup, the losses have become so large that they make it almost mathematically impossible for the government to inject enough capital without taking a majority stake or at least squeezing out existing shareholders.

And the new ground rules laid down by Mr. Obama’s top economic advisers for the second half of the $700 billion bailout fund, as explained in a letter submitted to Congress on Thursday, call for the government to play an increasing role in the major activities of the banks, from the dividends they pay to shareholders to the amount they can pay executives.

“We are down a path that this country has not seen since Andrew Jackson shut down the Second National Bank of the United States,” said Gerard Cassidy, a banking analyst at RBC Capital Markets. “We are going to go back to a time when the government controlled the banking system.”

Northern Rock Cash Used to Fund Deal

A third of the £747 million cash price that Sir Richard Branson’s Virgin Money is paying to buy Northern Rock will be funded from the state-owned bank’s current capital base, the Financial Times has discovered.

According to people involved in the deal, Virgin believes it can extract up to £250 million of “excess capital” from Northern Rock – as well as a further £150 million or so from Virgin Money – leaving the combined business with a thinner capital cushion.

Virgin Money announced on Thursday that it would pay £747 million in cash plus £150 million of new convertible debt for Northern Rock – the bank that epitomized the credit boom and bust before it was nationalized three years ago. A further sum of up to £130 million will be payable to the government depending on performance and the timing of any resale of the business.

Virgin Group is injecting only £50 million of cash alongside a similar amount from little-known Abu Dhabi fund Stanhope Investments, and close to £260 million from US financier Wilbur Ross. The rest is set to come from release of the nearly £400 million in “excess capital” from Northern Rock and Virgin Money.

The revelation of the structure behind Virgin’s deal makes no difference to the amount of money the taxpayer will receive, but could reduce money that might otherwise be deployed for loans or expansion. It also risks further infuriating critics of the deal, who on Thursday pointed to the loss of at least £400 million that the government is making compared with the bail-out money it injected.

Lord Oakeshott, the Liberal Democrat peer, said he was concerned whether Sir Richard Branson and his overseas backers might be planning an “asset strip” before the deal was formally completed.

“If he is going to do an asset strip for £250 million of capital it could mean that if things go wrong again we would have to rescue them again.”

Contagion is here and now and we are witnessing a ‘Perfect Storm’ involving a global banking and sovereign debt crisis leading to an international monetary crisis

XAU-GBP Exchange Rate (G14 30 Days - Bloomberg)


The scale of the debt crisis is so humongous that it is now beyond the scope of policy makers and central banks to sort out.



Volatility and wild gyrations in all financial markets continues due to a confluence of negative data, news and fundamentals.

French banks have been downgraded and Chinese Premier Wen’s call that Europe get its own house in order quashed the unsubstantiated and unsourced rumors regarding massive Chinese intervention to solve the Eurozone debt crisis.

European banks are hemorrhaging deposits as savers and money funds pile into other perceived havens such sterling, dollar and Swiss franc deposit accounts. Retail and institutional deposits at Greek banks fell 19 percent in the past year and almost 40 percent at Irish lenders in 18 months.

A tiny fraction of these European deposits has gone into gold with the majority going into other fiat currency deposits. It is not just the saver of periphery nations who are opening non euro deposit accounts - many German savers are opening up deposit accounts in Switzerland.

A Jefferies report suggesting that Europe is about to experience a Lehman Brothers collapse and splintering of the Eurozone continues to be digested and reverberate around global markets.

The report echoes and confirms what more astute observers, including GoldCore, have been warning of for some time.

The author is David Zervos, Managing Director and the Head of Global Fixed Income Strategy at Jefferies and a former Federal Reserve official (Visiting Advisor in the Division of Monetary Affairs in the Federal Reserve Board in Washington DC).

The Jefferies report first covered on Zero Hedge warns of “a move towards financial market nationalization that will make the U.S. experience look like a walk in the park.”

They warn of a breakup of the euro and periphery countries returning to their respective currencies – the escudo, lira, punt, peseta and drachma. However they focus on Portugal, Ireland and Greece or what they term the ‘PIG’.

“The most likely scenario for these countries is full bank nationalization followed by exit and currency reintroduction.”