Spain: BFA-Bankia Group Restructuring, 2012

In 2010 and 2011, seven troubled savings banks (cajas) merged to form Banco Financiero y de Ahorros, S.A. (BFA), which the government capitalized with EUR 4.5 billion (USD 5.9 billion) in convertible securities, and BFA’s commercial banking subsidiary, Bankia (BFA, together with Bankia, was referred to as the BFA-Bankia Group). As a double-dip recession extended BFA-Bankia Group’s expected credit losses in Spain’s real estate market in 2012, third-party stress tests determined that the Group was deeply insolvent. On November 27, 2012, Fondo de Reestructuración Ordenada Bancaria (FROB), Spain’s newly established national resolution authority, and the Bank of Spain (BoS) approved the further restructuring and government takeover of the BFA-Bankia Group. The restructuring required an additional capital injection of EUR 17.9 billion into BFA, funded by the recently created European Stability Mechanism (ESM) through the issuance of ESM securities to BFA. The restructuring also involved the write-down of the shareholders of Bankia, the partial conversion of BFA’s subordinated debt to Bankia equity, and the transfer of BFA and Bankia’s real estate assets to an asset management vehicle, Sociedad de Gestión de Activos procedentes de la Reestructuración Bancaria (SAREB), for EUR 22.4 billion. The restructuring of the BFA-Bankia Group stands out owing to the sheer size of the shortfall of regulatory capital that the bank and its parent faced (EUR 24.7 billion), as well as the gross cost to the government of about EUR 45 billion, including the purchase of assets by SAREB. External pressure from the International Monetary Fund (IMF) and the European authorities, and financial support from the latter were instrumental in the measures the government took. The government retains a 16.1% stake in CaixaBank, which acquired Bankia in 2021. Taking into account the value of that stake and other recoveries, the Bank for International Settlements (BIS) estimated the net cost to the government of the BFA-Bankia Group rescue at EUR 17.2 billion, excluding losses experienced by SAREB on the assets it acquired from the bank.