Bankia held 10% of Spain's deposits — and €32B of property loans it couldn't recover

Bankia was Spain's fourth-largest bank, holding about ten per cent of the country's deposits. It was a new institution with old problems: it had been created only in 2010 from a merger of seven struggling savings banks, and it carried the industry's largest exposure to Spain's crashed property market — about €32 billion of loans linked to a property sector that had collapsed.

The bank went public in 2011, but the bad assets kept dragging. On 7 May 2012 its executive chairman, Rodrigo Rato — a former head of the International Monetary Fund — resigned as the government prepared to use public money to clean up the bank's bad loans. Within days the state moved.

On 10 May 2012 Spain partly nationalised Bankia: €4.5 billion of government loans were converted into shares in its parent company BFA, giving the state a roughly 45 per cent stake and effective control, with up to €10 billion of financial aid expected. The rescue would ultimately reach about €22.5 billion, the centrepiece of Spain's banking crisis and a turning point in the wider euro crisis.

Bankia is the clearest example of a bank that was assembled from weakness rather than strength. Combining seven savings banks that had all lent heavily into the same property bubble did not diversify the risk — it concentrated it, and when the bubble burst the state, not the strategy, had to absorb the loss.