Investors flee Spanish debt amid bank bailout fears

Spanish Prime Minister Mariano Rajoy said Monday the state was struggling to borrow as its risk premium hit a euro-era record and fears spread over its stricken banks.

Rajoy sought to calm investors after the distressed lender Bankia pleaded for the biggest state rescue in Spanish history.

But Spain's sovereign debt risk premium -- the extra return investors demand to hold Spanish bonds over their safer German counterparts -- leapt to a euro-era record of 514 basis points.

"With a risk premium at 500 points, it is very difficult to raise finances," Rajoy told a news conference.

He played down the repercussions of Bankia's troubles, saying it would have no impact on efforts to trim the public deficit and denying that it had undermined confidence in Spanish sovereign debt.

The Spanish leader reiterated his government's line that it will not seek a foreign bailout.

But Bankia's request Friday for 19 billion euros ($24 billion) in state funds nevertheless raised concerns over the entire sector as reports circulated that other banks could need another 30 billion euros.

On the Madrid stock exchange, the IBEX-35 index slid 2.17 percent to 6,401.20 points, its lowest close in nine years.

Bankia slumped 13.38 percent, Banco Popular fell 7.50 percent and CaixaBank dropped 5.09 percent. Santander, the biggest in the eurozone by market value, tumbled 3.23 percent and number-two BBVA declined 3.39 percent.

"Far from calming the debt markets and share prices, Rajoy's words accelerated the drop in bank prices and failed to dispel doubts about where the money is coming from to be injected into Bankia," said Daniel Pingarron, analyst at brokerage IG Markets.

If the state finds itself unable to raise the cash on the financial markets, investors fear that, despite the denials, the eurozone's fourth largest economy may be forced to go cap in hand to Brussels.

Bankia's board met Friday and requested the bailout. When taken together with a 4.465-billion-euro capital injection made earlier this month, the total bill would be an unprecedented 23.5 billion euros.

Until now, the state-backed Fund for Orderly Bank Restructuring (FROB) has raised finances in the debt markets and then transferred the money into troubled banks.

But the FROB only has 5.4 billion euros, of which one billion has already been committed to the Banco de Valencia, which was recently taken over by the state, Bankinter analysts said in a report.

"We are studying two options," an Economy Ministry spokeswoman told AFP.

"The first is our preferred option, which is to go to the market," raising funds for Bankia with a bond issue, she said.

The second option would be to inject government bonds directly into the bank, the spokeswoman said. The bank could use the bonds as collateral to raise liquidity with the European Central Bank or sell them, she explained.

This, however, would not prevent Spain's debt from rising above Madrid's end-2012 target of 79.8 percent of gross domestic product.

"The idea of such a debt/equity swap for Bankia looks clever, or is it too clever," wondered Berenberg Bank chief economist Holger Schmieding.

"The key issue is whether such a debt-equity swap would do enough to bolster public trust in Spanish banks and thus safeguard their deposit base," he added.

According to centre-right daily El Mundo, the state might have to inject another 30 billion euros in public funds into three other banks it has taken over: CatalunyaCaixa, NovacaixaGalicia and Banco de Valencia.

That would bring the total bill to more than 50 billion euros, enough to sow doubts about Spain's capacity to pay up at a time when it is struggling to trim its budget deficit.

Concerns about spending by Spain's powerful regions are also weighing on sentiment.

Catalonia president Artur Mas called Friday for the central government to approve the use of "hispanobonos" jointly issued by the regions and guaranteed by the state. His region alone faces debt payments, including refinancing costs, of 13.48 billion euros in 2012.

Loading...

Editor’s note:Yahoo Philippines encourages responsible comments that add dimension to the discussion. No bashing or hate speech, please. You can express your opinion without slamming others or making derogatory remarks.

  • Billionaire finds wreck of WWII ship in Phl
    Billionaire finds wreck of WWII ship in Phl

    Microsoft co-founder Paul Allen says he has found the Japanese Navy’s biggest warship at the bottom of the sea in the Philippines, 70 years after US forces sank it. Allen posted a photo on Twitter on Tuesday of the World War II battleship Musashi’s rusty bow, which bore the Japanese empire’s Chrysanthemum seal. The American billionaire, who has also pursued space exploration, said his luxury yacht and exploration ship, the M/Y Octopus, found the Musashi one kilometer (1.6 miles) deep on the …

  • Miriam bucks house arrest for Enrile
    Miriam bucks house arrest for Enrile

    Sen. Miriam Defensor-Santiago believes granting Senate Minority Leader Juan Ponce Enrile house arrest, while former President Gloria Macapagal-Arroyo remains under hospital detention, will violate the equal protection clause of the Constitution. “That’s already a violation of the equal protection of the law,” she said. …

  • 8 of 10 cities most at risk from natural disasters located in Phl – study
    8 of 10 cities most at risk from natural disasters located in Phl – study

    Eight of 10 world cities most exposed to natural hazards are in the Philippines and more than half of the 100 cities most exposed to earthquakes, storms and other disasters are in four Asian nations, according to a research. The study, published on Wednesday by risk analysis firm Verisk Maplecroft, analyzed the threat posed by storms, floods, earthquakes, tsunamis, fires, volcanoes and landslides in more than 1,300 cities. The study found that the 10 cities most at risk are Port Vila in …

  • US ambassador recovers from knife attack praised by N. Korea
    US ambassador recovers from knife attack praised by N. Korea

    The US ambassador to South Korea, Mark Lippert, was recovering from surgery Thursday after having his face and arm slashed by a knife-wielding activist in an attack applauded by North Korean state media. The United States condemned the "act of violence" which saw the ambassador rushed to hospital where his condition was described as stable after two-and-a-half hours of surgery that included 80 stitches to a deep gash on his right cheek. During the assault, Kim screamed a slogan in favour of …

  • World's oldest person wonders about secret to longevity too
    World's oldest person wonders about secret to longevity too

    TOKYO (AP) — The world's oldest person says 117 years doesn't seem like such a long time. …

  • New Moro rebel group emerges
    New Moro rebel group emerges

    A radical Muslim cleric trained in the Middle East and considered one of the leaders of the Bangsamoro Islamic Freedom Fighters (BIFF) has broken away from the terror group to form his own band of jihadists who are now reportedly providing sanctuary to bomb expert Basit Usman and at least five foreign militants, the military said yesterday. Armed Forces of the Philippines (AFP) spokesman Col. Restituto Padilla, citing reports from the field, said the Justice for Islamic Movement (JIM) was …

  • Ohio mom, boyfriend guilty; child emailed teacher for help

    PORTSMOUTH, Ohio (AP) — A woman and her boyfriend pleaded guilty to raping her young children and were sentenced to prison on Wednesday, a year after one of her daughters emailed a teacher for help and said she and her siblings were being chained to their beds, deprived of food and sexually assaulted. …

  • UNA hits PNP selection process
    UNA hits PNP selection process

    The United Nationalist Alliance (UNA) hit yesterday the apparent machinations in the selection of the new Philippine National Police (PNP) chief. Navotas Rep. Toby Tiangco, UNA interim president, said the administration and the ruling Liberal Party (LP) are perpetuating the bata-bata or patronage system in the selection process of the police chief. “They will start this by maneuvering the appointment of Gen. Garbo as PNP chief,” said Tiangco, referring to one of the top contenders for PNP …

POLL

Should Aquino be held accountable over the Mamasapano operations?

Loading...
Poll Choice Options