Spain's Bankia profit falls, eyes on new government after election

By Jesús Aguado

MADRID (Reuters) - Spain's Bankia, majority owned by the state, posted a drop in first-quarter net profit on Monday due to lower trading income as attention turned to privatisation prospects after an election made a left-wing coalition likely.

The Socialists, who won the most votes in Sunday's election but will need at least one partner to govern, are expected to turn to far left-wing party Podemos, which has floated the idea that Bankia could become a permanent national bank.

Podemos has also lobbied for Bankia to offer services based on social, as well as market, considerations and had advocated a supplementary tax on banks' earnings.

Spain aims to sell its 61.4 percent stake after pumping 22.4 billion euros (£19.3 billion) into a rescue package for Bankia in 2012 at the height of the financial crisis. The state has until 2021 to offload the stake.

"The most reasonable is to think that the privatisation process that we've been taking part in the last few years will be allowed to be completed," CEO Jose Sevilla said during a news conference on the earnings.

"It will however depend on market conditions, we hope there will be market opportunities so that by 2021 the privatisation gets done," Sevilla said.

The bank has not held talks with Podemos, he said, after adding that Spain needed to learn to live with a fragmented parliament.

Shares in Bankia outperformed the market on Monday with a 1.7 percent gain after falling 36 percent in 2018 and almost six percent so far this year.

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As with other European banks, Spanish lenders are struggling to lift earnings from loans as rates hold at ultra-low levels which some analysts and bankers believe could prompt Spanish lenders to continue a trend of consolidation in the sector.

On Monday, however Sevilla ruled out any merger plans with Banco Sabadell or BBVA. In March, the Sabadell chairman did not rule out a deal with Bankia.

Net profit for the quarter was 205 million euros, above an average in a Reuters poll of 196 million euros thanks to lower provisions and costs, while trading income fell 73 percent.

Net interest income (NII), a measure of earnings on loans minus deposit costs, was 502 million euros, down 4.7 percent from a year earlier and 1 percent lower against the previous quarter, when it was also hit by competition for lending at home. Analysts had expected NII to be 501 million euros.

At the end of March, Bankia's core Tier-1 fully loaded capital ratio, the strictest measure of solvency, was 12.61 percent compared to 12.39 percent at the end of December.

At a time when the European Central Bank is pushing lenders to remove toxic real estate assets from their balance sheets, Spanish banks have been moving faster than peers in Italy thanks to an economic recovery and a rebound in real estate prices.

Bankia reduced its non-performing assets in the quarter by 450 million euros to 10.4 billion euros, while non-performing loans fell to 6.2 percent from 6.5 percent.

(Reporting By Jesús Aguado; Editing by Edmund Blair and Keith Weir)