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May 31, 2012

Bankia scandal: Liberal lawmakers muzzled

MADRID (UPI) -- Spain was rebuffed in a scheme to recapitalize troubled lender Bankia SA, while liberal Spanish lawmakers were snubbed for wanting to probe the bank's collapse.

A plan by Madrid to use the European Central Bank to recapitalize Bankia was rejected by the ECB as unacceptable, European officials said.

The government of Prime Minister Mariano Rajoy had said it wanted to recapitalize Bankia by injecting $24 billion in Spanish sovereign bonds into Bankia's parent company and then swapping the money for low-interest ECB cash, avoiding the need to raise the money the expensive way through bond markets.

The ECB told Madrid Spain had to follow the rules for capital injection, two European officials told the Financial Times.

The ECB, which administers the 17 eurozone member states' monetary policy, said Spain's proposal might breach an EU ban on central bank funding of governments, the officials told the newspaper.

The rejection came as Spain's ruling conservative Popular Party used its absolute legislative majority to block a call by two liberal lawmaker coalitions for a parliamentary investigation into how Bankia and parent Banco Financiero y de Ahorro could have suddenly required a $30 billion bailout, Spain's largest ever.

Spanish officials have said they had no warning about the near-collapse that threatens Spain's entire banking system.

Spain seized control of Bankia May 9.

Lawmakers from the United Left and Initiative for Catalonia Greens coalitions also had a demand quashed when they called for an investigation of $28 million in salaries and other compensation BFA-Bankia directors and other top managers received while the bank, Spain's fourth-biggest, posted the largest loss ever suffered by a Spanish lender.

One former Bankia official, Aurelio Izquierdo, received a $17.5 million pension.

The PP, as the Popular Party is called, additionally refused to consider calls for congressional testimony by former Bankia Chairman Rodrigo Rato and top officials of now-defunct savings banks that were grouped together to form Bankia in December 2010, the Spanish newspaper El Pais reported Wednesday.

The ruling party separately insisted any appearance by the Bank of Spain Gov. Miguel Angel Fernandez Ordonez would have to be limited to a closed-door subcommittee meeting, rather than a public hearing, the newspaper said.

PP parliamentary spokesman Alfonso Alonso said Fernandez Ordonez's appearance before an open session of Congress could fan "political confrontation" and be "counterproductive."

That prompted Fernandez Ordonez -- who has come under heavy criticism from the PP for not warning about Bankia's and other banks' problems earlier -- to submit his resignation, effective June 10, a month before his six-year term was to expire.

His departure statement Tuesday said by stepping down early he would be giving his successor a chance to open "a new chapter where important decisions must be taken."

Comments :


Some remarks:1. It isnot mialny about spreads it is mialny about (absolute) borrowingcosts.The problem is that these costs are unsustainable. Spreads are per se not unsustainable. A rise in spreads could partially be compensated by a drop in riskfree (Bundyields), as it partially is with Spain at the moment. Basically interest consist of 2 items: Bund-yields (risk-free) plus spread. In which spreads are a measure for risk. What we have here is that the combination of risk-premium plus risk-free is unsustainable.2. If Spain is going to finance it by indirectly 'printing money' it is not very likely to gain much confidence in markets.The suggestion of paying capital in by way of gov bonds that are subsequently put as collateral with the ECB is effectively simply a monetary financing of this recap.One of the problems of the whole EZ-rescue is simply that hardly any real money is involved, but it is guarantees often by the ones that have financial problems galore.ECB heavily against anyway.3. Spain will continue to move in this direction as there will be on one side less and less money to buy its bonds and on the other the supply of these bonds (debt) is likely to rise (because of eg bankrescues (and because the austerity moves much slower than the running out of LTRO money on the other side)).So even if the fundamentals (and the markets judgement of that would remain the same, but they look to get worse and worse). There will be increased selling pressure with as result higher yields.Only a bail out or ECB programm can stop that realistically (recession being only minor and short term (aka good news) simply doesnot look realistic).It is moving down South and has got in the chain reactions of:- bad banks and likely regions needing rescues and subsequently make gov finances even worse; and- economy goes bad so both banks as regions are making more losses?higher deficits.


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