28/05/2012 16:58
Mariano Rajoy, Spain’s prime minister, warned on Monday that Bankia would have failed without a planned €19bn nationalisation, and that the fall of any lender would result in the failure of Spain.
In a specially convened press conference, Mr Rajoy firmly restated that there would be no international rescue of Spain’s banks as the country’s borrowing costs over Germany leapt to the highest level since the launch of the single currency.
“There will be no rescue of Spain’s banks,” Mr Rajoy said, blaming a surge in Spain’s so-called risk premium on uncertainty over the stability of the euro, while restating Madrid’s commitment to stand behind the debts of its banks and regional governments.
“We are not going to let any regional government fall, or any bank fall, because they can’t ... if that happens the country will fall,” he said.
Mr Rajoy’s government announced last week that it would make an emergency €19bn injection in to Bankia, which was created from the merger of seven domestic savings banks.
The controversial move will take the total amount of state aid in Spain’s second-largest bank by domestic deposits to €23.5bn and will give Madrid a holding of up to 90 per cent of Bankia.
The prime minister, who has rarely appeared in public to talk about the crisis outside of parliament or international summits, said the government was still deciding how to fund the Bankia rescue.
“It might have been more comfortable to do nothing and look the other way, but the best thing to do when the situation is difficult is to tell the truth and start working from there,” he said.
Following news that Spain was considering directly injecting its own government debt into Bankia, which the lender would then be able to deposit at the European Central Bank in exchange for liquidity, the government said it had not yet discussed the plan with the ECB.
“Our first option is still to borrow money in the bond markets, which are still open to Spain,” a government official said.
But yields on Spain’s 10-year government bonds moved above 6.50 per cent once again on Monday – moving closer to the 7 per cent level that prompted bailouts for Greece, Portugal and Ireland.
Spreads on Spanish 10-year bonds over German Bunds were also flirting with euro-era highs, climbing above 500 basis points.
Bankia’s parent group BFA is not due to receive the €19bn until June or July. The BFA board is due to meet on Monday evening to formalise its accounts for 2011, which once restated are expected to show a loss of more than €3.5bn, people familiar with the bank said – greater than the previous record loss posted by Banesto in 1993.
Mr Rajoy said he expected the state to see a return on its investment in Bankia once the lender had been restored to health.
“Once the entity is healthy, and being as it is the first financial group in Spain [to be rescued], it can be sold, and we can recoup the state’s investment,” he said.
While Spain has taken action to deal with worries at Bankia, many analysts continue to believe the government has not gone far enough in addressing wider issues affecting the country’s banks, which lent heavily during the property bubble and are sitting on an estimated €180bn of bad real estate loans.
In a specially convened press conference, Mr Rajoy firmly restated that there would be no international rescue of Spain’s banks as the country’s borrowing costs over Germany leapt to the highest level since the launch of the single currency.
“There will be no rescue of Spain’s banks,” Mr Rajoy said, blaming a surge in Spain’s so-called risk premium on uncertainty over the stability of the euro, while restating Madrid’s commitment to stand behind the debts of its banks and regional governments.
“We are not going to let any regional government fall, or any bank fall, because they can’t ... if that happens the country will fall,” he said.
Mr Rajoy’s government announced last week that it would make an emergency €19bn injection in to Bankia, which was created from the merger of seven domestic savings banks.
The controversial move will take the total amount of state aid in Spain’s second-largest bank by domestic deposits to €23.5bn and will give Madrid a holding of up to 90 per cent of Bankia.
The prime minister, who has rarely appeared in public to talk about the crisis outside of parliament or international summits, said the government was still deciding how to fund the Bankia rescue.
“It might have been more comfortable to do nothing and look the other way, but the best thing to do when the situation is difficult is to tell the truth and start working from there,” he said.
Following news that Spain was considering directly injecting its own government debt into Bankia, which the lender would then be able to deposit at the European Central Bank in exchange for liquidity, the government said it had not yet discussed the plan with the ECB.
“Our first option is still to borrow money in the bond markets, which are still open to Spain,” a government official said.
But yields on Spain’s 10-year government bonds moved above 6.50 per cent once again on Monday – moving closer to the 7 per cent level that prompted bailouts for Greece, Portugal and Ireland.
Spreads on Spanish 10-year bonds over German Bunds were also flirting with euro-era highs, climbing above 500 basis points.
Bankia’s parent group BFA is not due to receive the €19bn until June or July. The BFA board is due to meet on Monday evening to formalise its accounts for 2011, which once restated are expected to show a loss of more than €3.5bn, people familiar with the bank said – greater than the previous record loss posted by Banesto in 1993.
Mr Rajoy said he expected the state to see a return on its investment in Bankia once the lender had been restored to health.
“Once the entity is healthy, and being as it is the first financial group in Spain [to be rescued], it can be sold, and we can recoup the state’s investment,” he said.
While Spain has taken action to deal with worries at Bankia, many analysts continue to believe the government has not gone far enough in addressing wider issues affecting the country’s banks, which lent heavily during the property bubble and are sitting on an estimated €180bn of bad real estate loans.
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