Post date: May 28, 2012 3:43:5 PM
Spanish debt yields jumped and shares in fourth-largest lender Bankia SA plunge to record lows, highlighting a lack of confidence in government efforts to stabilise the finances of Spain and its ailing banks.
SPAIN-BANKIA - Last week it was suspended from trade on the Spanish stock market - this week it became clear why.
As trading resumed on Monday shares in Bankia plummeted nearly 30 percent.The troubled lender is seeking a 19 billion euro bailout from the state.
Some reports suggest Spain may recapitalise Bankia with Spanish government bonds in return for shares in the bank.
However they do it the state takeover has fuelled fears that the cost of helping banks may force Spain to seek an Irish-style international bailout.
But Senior Economist at Standard Chartered, Sarah Hewin, says there is no fear that Spain's banking sector will collapse.
STANDARD CHARTERED SENIOR ECONOMIST, SARAH HEWIN, SAYING:
"The European bailout funds are there to help with the banks, particularly once we have the European Stability Mechanism up and running in July. That has the ability then to support banks rather than having to support the governments as a whole."
Bankia reported losses of nearly 3 billion euros for 2011. It's parent company BFA is also set to report equally gloomy results.
And any rescue will affect Spanish debt at a time when the country is implementing tough austerity measures.
Prime Minister Mariano Rajoy has been discussing the latest economic measures with members of his party - no doubt conscious of the growing anger on the streets.
FELISA, 79 YEAR-OLD RETIRED SPANIARD, SAYING:
"This money comes from the taxes taken from the people at the bottom. The people on top don't cut back their wages or anything. I'm retired and this year my pension is much less than last year.
JAVIER CASAS, ADMINISTRATOR IN THE JUSTICE SECTOR, SAYING:
"I don't thinks its right that we have to pay for debts of a private entity whose directors and mangers generated the debt."
Spain's borrowing costs have shot up in recent weeks as investors fret about a possible Greek exit from the euro zone.
That makes it even more diffIcult for Spain to raise the cash it needs to rescue Bankia.
Ciara Sutton, Reuters.