Business World

Tuesday 20 February 2018

Debt crisis: Moody’s poised to downgrade 21 Spanish banks as €1bn pulled from Bankia

RATINGS agency Moody’s is poised to downgrade up to 21 Spanish banks as Spain saw its borrowing costs rise sharply, according to reports today.

Stock markets fell across Europe as Spain paid more to borrow in an auction of €2.5bn bonds and investors took fright at reports of withdrawals from Spanish and Greek banks.

Shares in Bankia plunged early today, down 21.87pc - after an 11pc fall yesterday – however they rallied a little in the afternoon with a fall of just 11.3pc.

It emerged earlier that customers have pulled €1bn from the bank in the last week alone.

Bankia's chairman, Jose Ignacio Goirigolzarri, said that depositors can remain "absolutely calm".

And Spain's economy secretary Fernando Jiménez Latorre denied that the lender is suffering a run: “It's not true that there is an exit of deposits at this moment from Bankia.”

He added that Bankia has everything it requires to become a success in the future - it just needs time.

Demand for Spanish bonds was up at today’s auction and the state sold €2.49bn of debt - but it came at a huge cost.

Bonds due in January 2015 carried an average yield of 4.375pc, up massively from the last comparable auction in April, which saw an average of 2.89pc.

Bonds due in July 2015 were even higher, at 4.876pc, compared with 4.037pc at an auction in May. Bonds due in April 2016 reached 5.106pc.

Dr Nicholas Spiro, managing director at Spiro Strategy, says that this morning's Spanish bond auction represents a dangerous worsening of the Spanish situation:

“Make no mistake about it, these are painful auctions for the Treasury. Spain is selling its debt at punitive rates against a rapidly deteriorating domestic and external backdrop. Eurozone "break-up contagion" is seeping into Spanish yields. The external determinants of Spain's perceived creditworthiness are now at least as important, if not more, as the domestic ones.

“The markets are looking at Greece through the prism of contagion to Spain and Italy. The Greek crisis is placing huge strain on peripheral eurozone bonds and European bank shares. Spain is on the sharp end of these fears. The Spanish government itself can do very little to shore up confidence in the near term. Unless there is a bold and decisive response on the part of the eurozone, sentiment towards Spain will deteriorate further. This is a very slippery slope right now,” he said.

The turmoil also had an effect on the currency markets: the euro was at its lowest level against the US dollar since January, and each one will currently buy you just $1.2678.

And German ten-year bond yields sunk all the way to 1.423pc as investors sought somewhere safe to stow their cash.

Europe's markets also took a battering today, thanks in no small part to the drama at Bankia.

By midday the FTSE 100 fell 1.29pc, the DAX has dropped 0.86pc and the CAC has slipped 1.12pc. Spain's IBEX was at its lowest level since 2003, having fallen 1.94pc so far.

Italian bank shares were also plunging on growing worries over the debt crisis. UniCredit dropped 7.09pc, Banca Monte dei Paschi di Siena lost 6.89pc and Intesa Sanpaolo was down 4.32pc.

The Centre for Economics and Business Research predicted today that a Grexit could cost the global economy $1,000,000,000,000 - a trillion dollars.

Chief executive Douglas McWilliams said: “I told the Greek government two years ago in Athens that they had no option but to default and devalue. At the time this was an unusual view and I was attacked on prime time Greek TV by the leader of the Communist party as ‘irresponsible’ To be frank that didn’t worry me much – if the Communists think you are irresponsible you must be getting something right?Because of the failure to address the problems caused by the euro early enough these problems are now worse and the options have been reduced.”

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