Spain is considering directly injecting its own government debt into BFA-Bankia to help fund the stricken lender's €19 billion nationalisation, in an attempt to sidestep borrowing money directly from the bond markets.
The plan, viewed as highly unorthodox by analysts, involves Madrid issuing Spanish government guaranteed debt to Bankia in return for equity, with the bank then able to deposit the bonds with European Central Bank as collateral for cash. By giving bonds to Bankia, the government would be able to circumvent the expense of selling debt in the market at interest rates close to euro-era highs, Spain’s ministry of economy said.
Spain has not yet made any approach to the ECB on how its capital-raising plan would work, according to an official familiar with the situation. It remains unclear how Bankia could use money provided through the ECB’s short-term and temporary liquidity operations for a longer-term recapitalisation.
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