Bankia shares suspended with stricken Spanish bank expected to ask government for 12bn bailout
10:21 GMT, 25 May 2012
Trading of Bankia shares was suspended in Madrid today because the stricken lender is expected imminently to ask the government for a 12bn bailout.
The news that Spain's fourth-biggest lender, which has been crippled by bad property loans, is going to the heavily indebted state for such a large sum could have sent the stock tumbling.
Madrid's stock market regulator intervened 'due to circumstances that may affect the normal share trading'.
Cash withdrawal: Bankia is expected to go to the Government for a massive bailout later today
The massive handout would come on top of the €4.5billion the Spanish government has already spent on part-nationalising Bankia, which holds 10 per cent of the country's bank deposits.
Bankia, which will decide on the bailout figure at a board meeting today, had to reassure its savers last week that their money was safe after a Spanish newspaper reported a run on the bank.
The bank's finances were crippled by heavy losses from loans to property developers during a building boom that crashed in 2007-2008.
Bankia and other banks exposed to the property bust are seen as a major risk for Spain and for the entire euro currency zone, because of concerns that the government will end up having to ask for international aid to prop up lenders.
Banco Santander-owned Banesto has said that S&P could cut the credit rating of some Spanish banks today, just as Moody's did last Friday – a move which swept UK high street giant Santander into the euro crisis.
Earlier this week Economy Minister Luis de Guindos told a congressional committee that the state would have to put at least €9billion into Bankia to cover losses on bad loans and repossessed housing, but this could now balloon to €20billion. .
And the government will have to go to the markets to raise debt for that money, at a time when its borrowing costs are high.
Spain's country risk, as measured by the spread between benchmark German and Spanish bond yields, jumped as high as 500 basis points in recent weeks.
Spain's prime minister Mariano Rajoy warned yesterday that the country ‘cannot go on like this’ much longer with its current high borrowing rates, as he urged a joint European response to keep the region’s debt problems from getting worse.
A growing bank bailout is the last thing the Spanish government needs as it tries to slash spending on schools and hospitals to meet strict European deficit reduction targets.
Santander UK and its Spanish parent Banco Santander had their credit ratings cut last Friday, but the lender emphasised it was one of the stronger banks in Britain
It plans more than €45billion in savings this year to try to bring the deficit down to 5.3 per cent of GDP, a target made barely possible by the banking crisis.
Some market watchers said a big figure for Bankia's rescue may be better than a figure that will turn out to be too small.
'The idea is that the €15billion would cover all current funding needs and any more that might pop up, reassuring the market that there won't be any more surprise announcements,' said Sonia Tardio, a sales trader for Madrid brokerage Renta4.
Bankia shares have fallen 34 per cent since it was part-nationalised.
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