Posted on 05/09/2012 2:44:52 PM PDT by bruinbirdman
Spain has nationalised crippled lender Bankia in a dramatic move to contain the esalating crisis and restore faith in the country's management.
The forced rescue was ordered by premier Mariano Rajoy after auditors Deloitte refused to sign off the bank's books, amid allegations of €3.5bn (£2.8bn) of inflated assets. Half of the bank's €37bn of property exposure is deemed "problematic" by regulators.
The lender has asked for €4.5bn in loans, converting the cash into ordinary shares. The Spanish government holding 45pc of the bank in return. Bank of Spain has also demanded Bankia dispose of assets as part of the rescue.
"The Spanish have denied until now that there was any need for fresh capital so it comes as a surprise. It wasn't intended, and that is a worry," said Guy Mandy, credit strategist at Nomura.
Yields on Spanish 10-year bonds jumped above 6pc on Wednesday, pushing spreads over German Bunds to the danger line above 450 points. Spain's IBEX stock index fell 2.8pc, hitting its lowest level since 2003.
Bank shares plunged on plans by regulators to demand a further €37bn in provisions against property loans, on top of the €54bn already required. A string of banks now risk nationalisation.
The reform comes as Spain faces the full brunt of contagion from chaos in Greece, with mounting fears of a chain-reaction. Nicolas Doisy from Cheuvruex said the Spanish shoe "is about to drop", with an EU-IMF rescue more likely by the day. Authorities cannot allow Spain's crisis to fester. "There will surely be a point in time when the threat to the very existence of the euro will become obvious," he said.
Andrew Roberts from RBS said brinkmanship between Athens and Berlin over Greece's euro membership risks full-fledged conflagration, with Spain in the frontline. "The
(Excerpt) Read more at telegraph.co.uk ...
How is this supposed to “restore faith”? This should cause a bigger panic.
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