Wed, May 30, 2012 - Page 10 News List

Spain’s sovereign risk premium soars amid banking fears


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

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

However, 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 the Bankia situation, 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 prime minister reiterated his government’s line that it would not seek a foreign bailout.

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

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.

The parent company of Bankia has restated its results for last year to reflect a 3.3 billion euro loss as opposed to a 41 million euro profit.

BFA, or Banco Financiero y de Ahorros, said in a statement late on Monday that about half of this revised amount stemmed from losses at Bankia, which has been nationalized by the government and will receive 19 billion euros in a government bailout. BFA said another 1.6 billion euros in losses came from an adjustment of expected tax deductions, which the company had tabulated as assets.

Bankia’s exposure to toxic real estate assets is now calculated at about 40 billion euros, as opposed to the most recent total of 32 billion euros.

Meanwhile, the four biggest Greek banks received 18 billion euros in rescue funds on Monday to help reinforce their capital bases, a Hellenic financial stability fund source said.

“The order to pay the banks has been made, this completes the process,” the official said on condition of anonymity.

The banks needed to recapitalize after they took hits as part of a deal to cut Greece’s privately owned debt by 107 billion euros.

National Bank, the biggest Greek lender, has received 7.43 billion euros, Piraeus bank 4.7 billion euros, Eurobank 3.97 billion euros and Alpha 1.9 billion euros, the official said.

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