Bankia, Spain's third largest bank by assets, is to be part nationalised, after regulators found half the bank's €37bn of property exposure to be "problematic".
The lender will convert €4.47bn of state aid into ordinary shares, according to the Bank of Spain, who was told by Bankia that this was “the most advisable option for strengthening [Bankia's] financial soundness”.
The decision came after government bond yields rose above 6 per cent, which was considered unsustainable. Spain's IBEX stock index fell 2.8 per cent, reaching its lowest level since 2003.
Spain will take a 45 per cent stake in the bank. The Bank of Spain has also required that Bankia get rid of assets as part of the deal.
The executive chairman of Spain's Bankia resigned on Monday. Other Spanish banks now face nationalisation.