Troubled Spanish bank Bankia plummeted on the stock market on Monday after it sought a 19-billion-euro ($24-billion) state bailout, raising doubts about the entire financial sector.
After diving by as much as 29.30 percent in early trade, Bankia shares were down 19.1 cents – or 12.17 percent – at 1.379 euros by late morning.
The bank’s board had met three days earlier and requested the biggest bailout in Spanish banking history from the state, which had already injected 4.5 billion euros this month.
Shares in the bank, formed in 2010 from a merger of seven troubled regional savings banks, have lost more than 60 percent of their value since listing in July 2011.
Spanish banks are at the heart of market concerns that Spain, the eurozone’s fourth-largest economy, could be forced to seek an international financial bailout.
Investors fear the troubles go much further than Bankia, with one newspaper, El Mundo, reporting that the government may even have to turn to European rescue funds to support the banks.
But a spokeswoman at the Economy Ministry told AFP that the government’s policy of not requesting outside aid, “has not changed.”
Concern deepened on the market, nevertheless.
Spain’s sovereign debt risk premium — the extra return investors demand over safe German government debt — hit a euro-era record of 509 basis points in the morning.
If the risk premium remains at high levels, “Spain could ask for help from the European Financial Stability Facility,” a government official was quoted as telling El Mundo.
“It is a possibility, although now every hypothesis is possible,” the source reportedly said.
Even more than other Spanish banks, Bankia has a vast exposure to the collapsed real estate sector, with central bank figures showing it held problematic property-related assets of more than 30 billion euros at the end of 2011.
Under the bailout, Bankia’s parent group, the Banco Financiero de Ahorros (BFA), is seeking 19 billion euros in extra capital from the state-backed Fund for Orderly Bank Restructuring (FROB).
Bankia then plans to launch its own 12-billion-euro capital increase, to be underwritten by its parent group.
Economy Minister Luis de Guindos last week estimated that Bankia would need around seven billion euros but said his government would provide whatever funds were needed.
The state took a controlling 45-percent stake in Bankia this month by converting an existing 4.465-billion-euro loan to its parent group BFA into equity.
The bank’s board members also agreed to revised the 2011 results to show a net loss of 2.979 billion euros caused by write-downs on its loan portfolio instead of a net profit of 309 million euros.
Prime Minister Mariano Rajoy’s conservative government this month instructed Spain’s banks to set aside an extra 30 billion euros in 2012 in case property-related loans go bad, on top of 53.8 billion euros required under reforms enacted in February.
Centre-right daily El Mundo said that in addition to the Bankia rescue, the state may have to inject another 30 billion euros into the financial sector.
A weekend report in the leading daily El Pais said the government could seek to avoid the costly debt markets altogether as it raises money to help out Bankia.
Until now, the state-backed FROB has raised finances in the debt markets and then transferred the money into troubled banks.
But the state could instead buy shares in the Bankia group in return for government bonds, issued by the Treasury or the FROB, the paper said, without citing sources.
Bankia could then use the government bonds as a guarantee in interbank borrowing or with the European Central Bank, or even in the worst scenario sell them on the open market, it said.