MADRID -- The president of Bankia tried Saturday to calm fears about the future of the bank, saying Spain's second largest mortgage lender will emerge as a solid financial entity after it receives $29.5 billion in state aid in the country's biggest-ever bank bailout.
Bankia and its parent group BFA are prepared to sell a large portfolio of real estate and a "significant package" of companies as part of its efforts to turn itself around, President Jose Ignacio Goirigolzarri told reporters.
The Spanish government has promised to honor Bankia's request, made late Friday, for $23.8 billion in state aid, an amount far higher than what it envisioned when the government effectively nationalized the bank this month after it was stuck with some $40 billion in toxic assets derived mainly from the burst real estate bubble.
At the time of nationalization, the Bank of Spain agreed to inject to $5.7 billion in rescue funds.
The government fears the cost of rescuing the country's vulnerable banks could overwhelm its finances, which are already strained by a double-dip recession and an unemployment rate of nearly 25 percent, and force it to seek a rescue by the rest of Europe -- already preoccupied by crisis-hit Greece.
Another obstacle is the interest rate of Spain's benchmark 10-year bond, which was at 6.29 percent Friday. Anything above 7 percent is considered unsustainable in the long run.
Goirigolzarri outlined the bank's restructuring and recapitalization plans, which foresee beginning of the injection of state funds in late June. He said one of his priorities is to "strengthen corporate governance." He said his target is to provide Bankia with a core capital of 9.5 percent.
Detailed plans of the bank's restructuring will be made public in mid-June and need to be approved by shareholders, he said.
In June, Bankia, will have access to $5.7 billion requested on May 9 from the state bank rescue fund, FROB.
Should Bankia, Spain's fourth largest bank, be able to raise capital on its own by appealing to private investors and existing shareholders, then the government's share could be reduced, he said.
Goirigolzarri said his aim is to consolidate Bankia as a leading financial institution capable of operating with solvency, liquidity and profitability. "We are conscious that we will be managing an organization that has public participation," he said.
Concern about the health of Europe's banks is a key part of the region's financial crisis. Spanish banks are seen as particularly shaky because they were heavily exposed to soured investments such as defaulted mortgage loans and devalued property.
The big fear is that if Greece leaves the euro, confidence in other financially weak countries like Spain and Italy could fall, causing the value of their bonds to drop. Ultimately, the worry is that it could undermine confidence in the system and create bank runs.
Bankia's request for recapitalization came as Standard & Poor's downgraded it and four other Spanish banks to junk status because of uncertainty over their restructuring. Such a move could make it more difficult for the banks to borrow the money they need to turn themselves around.
The bailout has angered a public suffering under the high jobless rate and relentless cuts. Alvaro Torres, 49, who owns a small fruit and vegetable market stall in Madrid, said that if there had been mismanagement in running the bank down, then those in charge should face a criminal investigation.
"If the bank needs to be helped out they should help it out, but first things first, those responsible should be held responsible," he said.
Goirigolzarri said his main immediate concern is to recapitalize Bankia, and that he will later decide on how to begin issuing credit.
"We want to expand business, so expanding credit, that is in our interest," he said.
The bank's shares have become subject to turbulent trading. On Friday, Spain's stock market regulator suspended them as Goirigolzarri and his board of directors met to assess how much aid to ask for.