The Spanish government may be left with no other option but to wind up Bankia, the major Spanish bank, entirely as its capital gap may be too large to allow for an effective recovery to take place.
Within three years, the Spanish government intended to tidy up, downsize and sell Bankia, but this strategy may not be as realistic now as the capital gap could potentially be bigger than 15 billion euros.
According to the government and various financial sources, the bank’s black hole has the potential to be much larger than previously expected.
A financial source that has full knowledge of the bank’s situation, said: “The bank faces two options. First, to be wound down. Second, to be wound down. The question is how small it will be at the end."
In order to take more market share and possibly buy it out, major banks including BBVA, Santander and La Caixa are encouraging the lender to be cleaned up and downsized.
A financial source commented: "It's clear that they would see a liquidation process with a good eye."
The government’s plan has not yet been made public after nationalising Bankia last week.
Jose Ignacio Goirigolzarri, the lender’s new chief, is likely to showcase his plans by the end of May to the Bank of Spain.
A financial source predicted Gorigolzarri will convert the bank into a more solid, smaller and profitable entity before auctioning it at a later date.
The source added: "Bankia can generate 2 billion euros in profit a year. Even after the balance sheet reduction and a serious clean up, it could probably still generate 600 million euros a year."
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