BANKIA SA (PINK:BNKXF), was created in 2010, after the merger of seven smaller Spanish banks. Now Bankia, is in trouble and the Government has proposed 23 billion Euros to bail-out the bank.
The news about Bankia has been rattling markets across the world. Spain is Europe’s 4th largest economy, and there is fear of an entire Euro-zone meltdown. Just this morning, Spain’s Budget Minister Cristobal Montoro, made a startling announcement. He urged the Euro-zone to act quickly and help his country, and basically stated that the country cannot finance itself.
Spanish 10 year bond yields are now near the danger zone of 7%. Montoro stated in a radio interview:
What this premium tells us is that the state, and Spain as a whole, has a problem when it comes to accessing markets, when we need to refinance our debt.”
“What that premium says is that Spain doesn’t have the market’s door open, as such, the challenge is to open that door and regain the confidence of those markets, our creditors.”
Montoro continued with the following word (emphasis ours): “Spain can’t really be bailed out, from a technical point of view,” although he added the following “”The amount needed by Spain’s banking system isn’t very high, nor excessive.”
Everyone now thinks that Spain’s banking system will need a bailout. We spoke to Juan Ramon Rallo, the  chief director of the Spanish libertarian think tank Instituto Juan de Mariana, who offered an entirely different solution to save Bankia, without any Government money.  It involves a debt for equity swap. The details of the plan are below (numbers are in Euros):
Bankia has 38.5 billion of debt, which are broken up as follows:
13.4 billions in subordinate debt.
11.6 billion in senior unsecured debt, maturing between 2013 and 2017
13.5 billion in senior unsecured debt maturing after 2017.
With a 100% swap of subordinate debt into equity, a 20% swap of medium term senior unsecured debt and 50% of long term senior unsecured debt, same amount of money that the Governments projects to inject in Bankia, could be raised without costing a dime.
The equity holders would be wiped out under this plan, but it would not cost Spain, or anyone else even one Euro.