Spain takes over Bankia to combat crisis - Reuters Canada

By Carlos Ruano and Jesús Aguado

MADRID (Reuters) - Spain took over Bankia, the country's fourth biggest lender, on Wednesday, trying to dispel concerns over the government's ability to clean up the financial sector four years after the banks were hit by a property market crash.

In a deal that will give the state a 45 percent indirect stake in Bankia (BKIA.MC: Quote), the government will take control of its parent company BFA by converting into equity a 4.5 billion euro loan it had given the financial group previously, the central bank said.

The economy ministry pledged to do all it takes to clean up Bankia, which has more than 30 billion euros of exposure to troubled loans to property developers and repossessed land and buildings.

The government is expected to lend or give Bankia up to 10 billion euros in additional aid, though some bank analysts say it will need more.

Uncertainty over the final cost of the country's banking reform hit the euro, Spanish debt and global stock markets on Wednesday.

If a huge rescue puts Spain's fiscal solvency into question and the country needs international aid, the survival of the euro zone could be at stake.

Since the banking crisis began, Spain has bailed out seven smaller savings banks, but the Bankia rescue is by far the biggest and it comes after a string of other banking reform plans revealed over the past week.

These include moving toxic assets out of some banks and demanding that banks set aside 35 billion euros against loans to the moribund building sector, on top of 54 billion euros the banks are already provisioning.   Continued...