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Bank president moves to calm fears

The president of troubled Bankia has tried 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 19 billion euro (£15.2bn) 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, said Jose Ignacio Goirigolzarri.

The Spanish government has promised Bankia the money, an amount far higher than what it envisioned when it effectively nationalised the bank this month after it was stuck with some 32 billion euro (£25.6bn) in toxic assets derived mainly from the burst real estate bubble.

The government fears that the cost of rescuing the country's vulnerable banks could overwhelm its finances, which are strained by a double-dip recession and an unemployment rate of nearly 25%, and force it to seek a rescue by the rest of Europe - already preoccupied by crisis-hit Greece.

Goirigolzarri outlined the bank's restructuring and recapitalisation plans so far, which foresee beginning of the injection of state funds in late June. He said one of his priorities was to "strengthen corporate governance". Detailed plans of the bank's restructuring would be made public in mid-June and would need to be approved by shareholders, 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 eventually 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 recapitalisation 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 the need to turn themselves around.

Goirigolzarri said his main immediate concern was to recapitalise Bankia, and he would later decide on how to begin issuing credit. "We are recapitalising. 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. Yesterday, Spain's stock market regulator suspended them as Goirigolzarri and his board of directors met to assess how much aid to ask for.

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