MADRID — Spain’s banking crisis worsened Friday as the board of Bankia, the country’s biggest mortgage lender, warned that it would need an additional 19 billion euros ($23.88 billion), far beyond what the government estimated when it seized the bank and its portfolio of delinquent real estate loans earlier this month.
The government is trying to head off a collapse of the bank, which could threaten the Spanish banking industry and reverberate through the financial centers of Europe and beyond.
The fear is that it will not have the money to save its banks, and their $1.25 trillion in deposits, and will need a rescue by the rest of Europe — even as political and financial leaders struggle to resolve Greece’s debt debacle.
Bankia’s announcement came as Standard & Poor’s, the credit ratings agency, downgraded Bankia and two other banks, Banco Popular and Bankinter, to junk status and lowered the ratings of two other Spanish banks also staggered by mounting bad loans.
A junk rating could make it even harder for Bankia to borrow its way out of trouble. The rising fear now is that the recent steady outflow of deposits from Spain’s banks, which are suffering from the bursting of Spain’s real estate bubble, to institutions outside the country could eventually turn into the sort of bank run that almost brought the financial world to its knees after the collapse of Lehman Brothers in 2008.
Spain’s debt crisis is also playing out on another front. As its banks shudder, heavily indebted regional governments are also running out of money.
On Friday, the government of the Catalonia region warned that it might no longer be able to finance its debts and called on the central government for help. While other regions have also sounded budget alarms, Catalonia is the biggest so far; it represents nearly one-fifth of Spain’s economy.
The central government, facing its own mounting debt, may soon be in no position to provide help to either the banks or the regions. And with an economy in recession and unemployment at the highest level in the euro zone, Madrid is falling further behind in meeting the deficit-reduction targets it has agreed to with the European Union.
Nicholas Spiro, managing director of Spiro Sovereign Strategy, a London consulting firm that assesses sovereign debt risk, said the regional governments had become the “Achilles’ heel of Spanish fiscal policy.”
He added: “Catalonia’s request for financial support from Madrid underscores the idiosyncratic risks in Spain, which make it much more difficult for the central government to enforce fiscal discipline and implement economic reforms.”
The government has also come under criticism for its failure to confine the banking problems earlier. In February, Luís de Guindos, the Spanish economy minister, ordered banks to set aside 50 billion euros in additional provisions to cover fully their exposure to doubtful loans.
This month he told them to add another 30 billion euros. Shortly after Spain seized control of Bankia on May 9, as a first step toward recapitalizing the company, Mr. Guindos told lawmakers that the total cost of cleaning up the bank would be at least 9 billion euros.
Instead, after reviewing its most recent losses, Bankia’s board estimated Friday that the total would be 23.5 billion euros — the 4.5 billion euro emergency loan previously granted to the bank and the additional 19 billion euros sought on Friday.
Besides now being responsible for Bankia, the government could also find itself saddled with three other troubled savings banks — CatalunyaCaixa, Novacaixagalicia and Banco de Valencia — that have been put up for sale, with no buyers so far.
“If nobody shows up for these auctions, the government could very well follow the same path as with Bankia,” said Juan José Toribio, a professor at the IESE Business School. Mr. Toribio said it was unclear how the government could now finance Bankia’s rescue, adding that asking for European money was a possibility.
nytimes.com
The government is trying to head off a collapse of the bank, which could threaten the Spanish banking industry and reverberate through the financial centers of Europe and beyond.
The fear is that it will not have the money to save its banks, and their $1.25 trillion in deposits, and will need a rescue by the rest of Europe — even as political and financial leaders struggle to resolve Greece’s debt debacle.
Bankia’s announcement came as Standard & Poor’s, the credit ratings agency, downgraded Bankia and two other banks, Banco Popular and Bankinter, to junk status and lowered the ratings of two other Spanish banks also staggered by mounting bad loans.
A junk rating could make it even harder for Bankia to borrow its way out of trouble. The rising fear now is that the recent steady outflow of deposits from Spain’s banks, which are suffering from the bursting of Spain’s real estate bubble, to institutions outside the country could eventually turn into the sort of bank run that almost brought the financial world to its knees after the collapse of Lehman Brothers in 2008.
Spain’s debt crisis is also playing out on another front. As its banks shudder, heavily indebted regional governments are also running out of money.
On Friday, the government of the Catalonia region warned that it might no longer be able to finance its debts and called on the central government for help. While other regions have also sounded budget alarms, Catalonia is the biggest so far; it represents nearly one-fifth of Spain’s economy.
The central government, facing its own mounting debt, may soon be in no position to provide help to either the banks or the regions. And with an economy in recession and unemployment at the highest level in the euro zone, Madrid is falling further behind in meeting the deficit-reduction targets it has agreed to with the European Union.
Nicholas Spiro, managing director of Spiro Sovereign Strategy, a London consulting firm that assesses sovereign debt risk, said the regional governments had become the “Achilles’ heel of Spanish fiscal policy.”
He added: “Catalonia’s request for financial support from Madrid underscores the idiosyncratic risks in Spain, which make it much more difficult for the central government to enforce fiscal discipline and implement economic reforms.”
The government has also come under criticism for its failure to confine the banking problems earlier. In February, Luís de Guindos, the Spanish economy minister, ordered banks to set aside 50 billion euros in additional provisions to cover fully their exposure to doubtful loans.
This month he told them to add another 30 billion euros. Shortly after Spain seized control of Bankia on May 9, as a first step toward recapitalizing the company, Mr. Guindos told lawmakers that the total cost of cleaning up the bank would be at least 9 billion euros.
Instead, after reviewing its most recent losses, Bankia’s board estimated Friday that the total would be 23.5 billion euros — the 4.5 billion euro emergency loan previously granted to the bank and the additional 19 billion euros sought on Friday.
Besides now being responsible for Bankia, the government could also find itself saddled with three other troubled savings banks — CatalunyaCaixa, Novacaixagalicia and Banco de Valencia — that have been put up for sale, with no buyers so far.
“If nobody shows up for these auctions, the government could very well follow the same path as with Bankia,” said Juan José Toribio, a professor at the IESE Business School. Mr. Toribio said it was unclear how the government could now finance Bankia’s rescue, adding that asking for European money was a possibility.
nytimes.com
No comments:
Post a Comment