Banks rocked by Euro fears
Italy and Spain send Europe’s banking index plunging to 2008 levels
Spain takes €4.5bn stake in Bankia as fears over its banks grow
Greece fails to form a government for the third day running
SPAIN last night part-nationalised its fourth-largest bank, Bankia, in a dramatic move to try and contain the escalating financial crisis as fears grow over the sector’s exposure to property assets.
Spain’s central bank said the lender had asked for a €4.5bn bailout loan to be converted into shares, granting the Spanish government 45 per cent of the bank in return.
The conversion, which still needs state authority approval, was “the most advisable option for strengthening the financial soundness of the business,” Bankia’s parent BFA said last night. Over half of Bankia’s €37bn of property exposure is deemed problematic by regulators.
The turmoil at Bankia contributed to huge stock market falls across Europe yesterday, with banking stocks plunging to levels not seen since the depths of the financial crisis.
The falls were worst in Spain, where the government, which yesterday reiterated it would “guarantee the stability of the overall banking system”, is expected tomorrow to demand that lenders put aside up to another €35bn to cover real estate losses. The Spanish stock exchange dropped by 2.8 per cent to its lowest level in nine years on fears the government’s plan could force it to seek Eurozone help if it cannot afford to fund its guarantee.
In Italy, where euro worries were compounded by a police raid on Monte dei Paschi – one of the country’s biggest banks – over an alleged insider trading case, the main index FTSE MIB dropped 2.4 per cent.
Markets were also troubled by the ongoing political turmoil in Greece, where the runner-up in its recent elections, the radical left Syriza party, failed to form a coalition for the third day running.
It will be forced to hand over the mandate for government to the Socialists today, who have said they want to form a coalition of parties that want to stay in the Eurozone – a proposition that looks doomed because pro-bailout parties lack the seats needed.
The Eurozone’s bailout fund was forced to withhold €1bn of bailout money scheduled to be given to Greece today after its backers – EU governments headed by Germany – had a dispute over whether to disperse any of the €5.2bn due today at all.
Saxo Bank economist Nick Beecroft said: “Make no mistake, the Greek vote yet again raises true existential issues for the euro, coming as it does just as a wave of democratic revolt against Teutonic austerity sweeps across the continent.”
Investors rushed into “safe haven” assets like German and British government bonds, pushing their yields to historic lows, and bet against the euro and the price of oil, with the latter falling for the sixth day running.
In the UK, the FTSE 100 fell 0.4 per cent to 5,530.05 extending Tuesday’s 1.8 per cent drop – and leaving it at its lowest level this year.