Business World

Saturday 21 April 2018

Spanish leader insists nation won't need international help

Mariano Rajoy. Photo: Reuters
Mariano Rajoy. Photo: Reuters

Ciaran Giles

SPANISH Prime Minister Mariano Rajoy insisted yesterday that the country's banking sector would not need an international rescue and that the euro region's rescue fund should be able to bypass national governments and recapitalise distressed lenders dirrectly.

"There will be no rescue of the Spanish banking sector," Rajoy told a press conference.

However, he added that the government had no choice but to bail out Bankia, which has been crippled by Spain's real estate slump.

"We took the bull by the horns because the alternative was collapse," said Mr Rajoy, stressing that Bankia clients' savings were now safer than ever.

Toxic

Bankia, Spain's fourth-largest bank, is estimated to have €32bn in toxic assets and was effectively nationalised earlier this month when the government converted €4.5bn in rescue funds it gave last June into shares.

The lender's shares fell 28pc on opening in Madrid yesterday -- Bankia's first day back on the exchange after its announcement on Friday that it would need the €19bn in state aid to shore itself up against its bad loans, a far bigger bailout than expected. The shares, which recovered slightly in the afternoon, closed 13.4pc lower at €1.36.

Bank of Spain estimates show Spain's lenders are sitting on some €180bn in risky assets. The government fears the cost of rescuing the country's vulnerable banks could overwhelm its own finances, which are already strained by a double-dip recession and an unemployment rate of nearly 25pc, and force it to seek a rescue by the rest of Europe.

Among the chief concerns surrounding Bankia's request for state aid -- the largest in Spanish history -- is just how Spain plans to fund it. The country's borrowing costs have risen sharply over the past few weeks.

Spain's interest rate, or yield, for 10-year bonds on the secondary market rose 0.16 percentage points yesterday to close at 6.45pc. Mr Rajoy said this had more to do with broader concerns about Europe and Greece and dismissed suggestions it had anything to do with Bankia.

A rate of 7pc is considered unsustainable over the long term, and there is concern that Spain might soon join the ranks of Greece, Ireland and Portugal and seek a bailout.

The prime minister said that the government had not yet decided how it would proceed in funding the Bankia bailout.

However, the economy ministry said earlier yesterday that it was considering injecting government debt into Bankia's accounts. The bank could then turn to the ECB and use those bonds as collateral to receive cash for the recapitalisation.

Analysts said that such a technique would only prove to investors that the country was having difficulties raising money on the international debt markets and would therefore make them even more reluctant to buy Spanish debt.

"It sends a signal of a lack of confidence," said Mark Miller of Capital Economics in London.

Oscar Moreno of Madrid brokerage Renta4 said the government had little choice. It could either use this uncommon technique or simply ask the European Union for money to bail out the banking sector, which Mr Rajoy has ruled out as unnecessary.

Irish Independent

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