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Spain's hurting banks at heart of eurozone chaos... by 123wert sdfsf
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Spain's hurting banks at heart of eurozone chaos... |
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Business,Business News,Business Opportunities
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MADRID — Spain is under rising pressure to find a lifelinefor its deeply troubled banks. Politicians in Europe and investors around the world are worriedthat the recession-hit country can't come up with the money neededto save its banks without bankrupting the government. Expectationsare rising that Spain's leaders will have to seek an internationalbailout for banks crumbling under the weight of bad real estateloans. As Spain's leaders struggle for a solution to their banking crisis,the country's borrowing costs have soared close to the level thatforced the governments of Greece, Portugal and Ireland to seekfinancial rescues. As much as (EURO)100 billion ($126 billion) may be needed tobolster Spanish banks, the credit rating agency Fitch saidThursday.
Fitch, which had previously said (EURO)30 billion wasneeded, downgraded the country's debt rating on Thursday to twonotches above junk and warned that further downgrades werepossible. Spain sold (EURO)2 billion ($2.52 billion) in bonds earlierThursday, but had to pay investors much higher rates than inprevious bond sales. There is a growing sense that time is runningout for Spain's government and banks to continue muddling through. The sale came after Spain's economy minister traveled Wednesday toBrussels to huddle with key decision makers in the capital of theEuropean Union. And on Thursday, Spanish Prime Minister Mariano Rajoy hosted hiscounterpart from the Netherlands, one of the 17 eurozone countriesthat would have to approve outside help if Spain can't save itsbanks on its own.
Rajoy said this week that Europe "needs to support those that arein difficulty." Here are some questions and answers about Spain's banking crisis: WHY DO SPANISH BANKS NEED A BAILOUT? Spain's financial problems are not due to Greek-style governmentoverspending. The country's banks got caught up in the collapse ofa real estate bubble. Spain's banks, particularly its savings banks or "cajas," haveenormous amounts of bad loans. And as the second recession in threeyears hits Spain, the number of bad loans is expected to surge.Spain's unemployment has risen to nearly 25 percent, making itincreasingly difficult for many Spaniards to pay their mortgages.
The country's central bank, the Bank of Spain, says banks are stillburdened with about (EURO)175 billion ($220 billion) in"problematic" real estate holdings, including loans and repossessedhomes. Spain's government debt stood at a relatively low 68.5 percent ofits gross domestic product at the end of 2011. It is predicted tohit 78 percent by the end of the year. But even that higher figurewould still be below the 2011 debt-to-GDP ratios of countries likeItaly, Belgium, France and even Germany. SO WHY IS SPAIN'S BANKING CRISIS SO WORRISOME TO EVERYONE ELSE? Spain is the fourth-largest economy in the 17-country eurozone,behind Germany, France and Italy.
Its economy is nearly five timesbigger than Greece's, making its financial and economic problemsmuch more worrisome for leaders in Europe. The rising cost of rescuing failed banks risks bankrupting theSpanish government. And since banks own huge amounts ofgovernments' bonds, it could result in a downward spiral requiringmore financial aid for banks. A widening recession and financial crisis in one of Europe'slargest economies would drag down neighboring countries and hurtcompanies and investors around the world.
An international bailout of Spanish banks could relieve some of thepressure on the Spanish government, and decrease anxieties acrossEurope and the rest of the world. HOW MUCH WILL IT COST TO BAIL OUT SPAIN'S BANKS? Bankia S.A., the country's most stricken lender, announced lastmonth that it needed (EURO)19 billion ($23.63 billion) ingovernment aid. Spain only has (EURO)5 billion left in a fund thatit established in 2009 to help banks. The government has promisedto help Bankia but has not mapped out a plan.
At least four other Spanish banks also need help. That's true eventhough Spain reduced the number of its troubled banks throughmergers over the past several years to try to strengthen themagainst failure. The overall cost of bailing out Spain's troubled banks is somewherebetween (EURO)40 billion and (EURO)100 billion. The InternationalMonetary Fund is scheduled to weigh in with an evaluation ofSpain's banking industry Monday. And the Spanish government hascommissioned independent audits to determine the banks'recapitalization needs.
The Spanish government has pushed lenders to strengthen theirfinances by merging, and has told banks to set aside an additional(EURO)84 billion by the end of 2012 to cover soured real estateassets. Spain's two largest banks – Banco Santander SA andBanco Bilbao Vizcaya Argentaria SA – are expected to meet thestiffer requirements. However, investors are fearful about theability of the capability of smaller banks and the true extent oftheir liabilities. WHERE COULD THE BAILOUT MONEY COME FROM? Spain has yet to map out how its banks – in particular Bankia– will be saved. Spain could finance a bank bailout by selling bonds.
But it'sreluctant to take on a huge amount of debt when the interest rateinvestors would demand is perilously close to the 7 percent levelthat forced Greece, Ireland and Portugal to seek bailouts. Thatcould turn Spain's banking crisis into a government-debt crisis,which so far it has been able to avoid. Spain would like to get European aid for its banks but is reluctantto ask for it because under current rules the aid would have to befunneled through the government. That would also increase thecountry's public debt load and potentially send interest rates onits bonds higher.
Spain is trying to convince European leaders to let it have a"light" form of a bailout without directly asking for it. It hopesto find a little wiggle room in a measure approved by EuropeanUnion leaders last July. That measure allows the EU to lend moneyfor the purpose of recapitalizing banks in countries not alreadyreceiving bailouts. The rules say the money would have to be funneled through thegovernment.
However, the conditions attached to the bailout wouldnot have to be as over-arching as those attached to governmentbailouts, such as in Greece and Ireland. "There is talk on the start of different solutions, but there'sstill nothing concrete," said Antonio Barroso, an analyst with theEurasia Group political risk consulting group. ___ Associated Press writers Daniel Woolls, Ciaran Giles, David McHughand Shawn Pogatchnik contributed from Madrid, Berlin and Dublin. I am Automobile writer, reports some information about trailer leaf springs , trailer leaf spring.
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