Spain sends ‘distress signal’ as bank set to get less than €19bn

Bankia, the fourth largest bank in Spain, could get less than the €19 billion in aid it has asked for, two sources said, prolonging uncertainty surrounding a rescue that has added to fears that Spain itself would need a bailout.

The money would be on top of about €4.5bn Madrid has already put in to the bank.

Spain’s government is in the process of nationalising the bank, which has struggled under the weight of souring property assets after a property bubble burst four years ago. But the amount needed for the rescue may have been overestimated and Bankia may end up getting less bailout money, the sources said, adding the final figure would only emerge after a series of other audits.

Bankia’s management said on May 25 in a stock exchange announcement that the bank needed €19bn, and it offered a timeline for recapitalisation that would be co-ordinated with the Bank of Spain and the government. Yesterday, one of the sources said that amount would have to be approved by the Spanish rescue fund FROB and the Bank of Spain, which would take until the end of August. The government also is waiting for an IMF report on Spain’s banks, due next week, and the results of an audit stress-testing Spain’s banking sector, due out in two phases, at the end of June and at the end of August, the sources said.

Meanwhile, Spain said that credit markets were closing to the eurozone’s fourth biggest economy as finance chiefs of the Group of Seven major economies conferred on the currency bloc’s worsening debt crisis but took no joint action.

Treasury minister Cristobal Montoro sent out a dramatic distress signal about the impact of his country’s banking crisis on government borrowing, saying at current rates, financial markets were effectively shut to Spain.

Spain is beset by bank debts triggered by the bursting of a real estate bubble in 2008, aggravated by overspending by its autonomous regions.

The premium investors demand to hold Spanish 10-year debt rather than safe-haven German bonds hit a euro era high of 548 basis points on Friday, on concerns that it will eventually be forced to seek a Greek-style bailout.

Montoro said Spanish banks should be recapitalised through European mechanisms, departing from the previous government line that Spain could raise the money on its own and prompting the Madrid stockmarket to rise.

But his comments on Spain’s borrowing sent the euro down after the 17-nation European currency earlier hit a one-week high against the dollar on hopes that a conference call of G7 finance ministers and central bankers might hasten action.

The US Treasury, which chaired that meeting, said in a statement that the G7 discussed “progress towards a financial and fiscal union in Europe” and agreed to monitor developments closely. But the group made no joint statement and took no immediate action.

Japanese finance minister Jun Azumi said the G7 finance chiefs agreed to work together to deal with the problems facing Spain and Greece, but he gave no details.

European leaders, alarmed by the latest turn of events, have begun thinking seriously about the economic union needed to make the single currency project secure. But that end-game is months or years away. “What we have learnt since the weekend is that all the talk about a bigger solution, a bigger response from the politicians is gaining some steam,” said Rainer Guntermann, of Commerzbank, Frankfurt.

One senior European G7 source, speaking just before the teleconference, said it was set to turn into a “Germany-bashing session”, with other partners applying severe pressure on Berlin to do more to stimulate growth and help the eurozone.


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