MADRID, Feb 18 (Reuters) - The Spanish authorities will take a majority stake of 65 percent in small, unlisted lender BMN after a cash injection and the conversion of preference shares into capital, a source with direct knowledge of the operation said on Monday.

In a statement to the Spanish stock exchange regulator released earlier on Monday, BMN had said the country's bank restructuring fund FROB would convert into capital 915 million euros ($1.22 billion) in preference shares as well as fully subscribe a capital increase of 730 million euros.

The source said the operation would give the FROB a controlling stake of 65 percent in the bank while the remaining 35 percent would be owned by savings banks Caja Murcia, Caja Granada and Sa Nostra, which formed BMN in 2010.

The bank declined to comment on the matter.

The FROB currently controls three other Spanish lenders - Bankia, Catalunya Banc and NCG Banco - and it recently sold off Banco de Valencia to CaixaBank.

As a condition for receiving 40 billion euros in European money to prop up a banking sector brought low by the end of a decade-long property bubble five years ago, Spain has committed to have BMN listed by 2017. ($1 = 0.7490 euros)

(Reporting by Jesus Aguado, Writing by Julien Toyer; Editing by Dale Hudson) Keywords: SPAIN BMN/

(julien.toyer@thomsonreuters.com)(Tel +34 91 585 21 59)(Reuters Messaging: julien.toyer.thomsonreuters.com@reuters.net)

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