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MADRID – Conservative Spanish Prime Minister Mariano Rajoy insisted Mondaythat Spain's banking sector would not need an international rescueas concern over the bailout of nationalized lender Bankia sent itsstock price plummeting while Spain's borrowing costs soared. "There will be no rescue of the Spanish banking sector," Rajoy tolda press conference. However, he added that the government had no choice but to bail outBankia which has been crippled by Spain's real estate collapse. "We took the bull by the horns because the alternative wascollapse," said Rajoy, stressing that Bankia clients' savings werenow safer than ever. Bankia, Spain's fourth-largest bank, is estimated to have 32billion in toxic assets and was effectively nationalized earlierthis month when the government converted 4.5 billion in rescuefunds it gave last June into shares. The lender's shares fell 28 per cent on opening in Madrid on Monday— Bankia's first day back on the stock exchange following itsannouncement Friday that it would need the 19 billion ($23.8billion) in state aid to shore itself up against its bad loans, afar bigger bailout than expected. The shares, which recoveredslightly by midday to trade 13 percent down at 1.36, had closedat 1.57 before trading was suspended Friday. Bank of Spain estimates show Spain's lenders are sitting on some 180 billion ($233 billion) in assets that could cause themlosses. The government fears the cost of rescuing the country'svulnerable banks could overwhelm its own finances, which arealready strained by a double-dip recession and an unemployment rateof nearly 25 percent, and force it to seek a rescue by the rest ofEurope. Among the chief concerns surrounding Bankia's request for state aid— the largest in Spanish history — is just how Spainplans to fund it. The country's borrowing costs have risen sharplyover the past few weeks. On Monday, Spain's interest rate, or yield, for 10-year bonds onthe secondary market — a key indicator of market confidence— was up 13 basis points by midday to 6.42 percent. However,Rajoy said this had more to do with Europe and worries over Greeceand dismissed suggestions it had anything to do with Bankia. A rate of 7 percent is considered unsustainable over the long termand there is concern that Spain might soon be pushed join the ranksof Greece, Ireland and Portugal and seek an international bailout. The Prime Minister said that the government had not yet decided howit would proceed in funding the Bankia bailout. However, the Economy Ministry said earlier Monday that it isconsidering injecting government debt into Bankia's accounts. Thebank could then turn to the European Central Bank and use thosebonds as collateral to receive cash for the recapitalization. Analysts said that such a technique would only prove to investorsthat the country is having difficulties raising money on theinternational debt markets and would therefore make them even morereluctant to buy Spanish debt. "It sends a signal of a lack of confidence," said Mark Miller ofCapital Economics in London. Oscar Moreno of Madrid brokerage Renta4 said the government haslittle choice: either use this uncommon technique or simply ask theEuropean Union for money to bail out the banking sector —which Rajoy has vehemently ruled out as unnecessary. Moreno said Bankia's share price drop — and the rising bondyield — showed investors the Spanish banking sector's woesare getting worse. Only last week, for instance, Economy MinisterLuis de Guindos said the government would inject about 9 billioninto Bankia. "Basically, what the investor sees is that, with what has emergedwith Bankia, more money is going to be needed than what wasoriginally stated" than in two government decrees ordering banks toput aside a total of some 80 billion in provisions to cushionagainst losses from real estate, Moreno added. Spain's rocky financial situation has been made worse due tooverspending by its semiautonomous regions. One of the regionalgovernments, Catalonia, called for financial assistance last week,claiming it was running out of options to refinance its debts. Asked about the fragile state of finances of some of Spain'sregions, Rajoy said, "We are not going to let any region orfinancial entity fall because otherwise the country would fall." Concern about the health of Europe's banks is a key constituent ofthe region's financial crisis. While Spanish banks suffer mainlyfrom soured real estate investments, they and their counterpartsacross Europe also hold massive amounts of shaky government bonds.As the financial crisis worsens, those bonds lose value, hurtingthe banks. The big fear is that if Greece eventually leaves the euro,confidence in other financially weak countries like Spain and Italycould fall, causing the value of their bonds to drop. Ultimately,the worry is that could undermine confidence in the system andcreate bank runs. To avert such a disastrous scenario, financial experts areincreasingly calling for a Europe-wide support system for thebanks. We are high quality suppliers, our products such as Thermocouple Extension Wire , Monel Welding Wire Manufacturer for oversee buyer. To know more, please visits Copper Nickel Welding Wire.
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