Spain paid sharply higher borrowing rates yesterday in a sale of €3.077 billion of short-term sovereign debt, the central bank said, a sign of high tension over its financial sector.
Moody’s credit agency hit 28 Spanish banks with new credit downgrade
The borrowing rate on three-month bills nearly tripled to 2.362 per cent from 0.846 per cent in the last comparable sale on May 22. The rate on six-month bills rose to 3.237 per cent from 1.737 per cent on May 22.
The high rates attracted strong demand of €8.325 billion, the bank said in a statement, and Spain was able to borrow slightly more than the €2-€3 billion it had planned.
Tension on the financial markets that lend to Spain has soared in recent weeks because of concerns over its banking sector, severely weakened by the collapse of a housing boom in 2008.
On Monday, Spain formally requested a rescue loan from a credit line of up to €100 billion offered by its eurozone partners to secure the banks.
It did not say publicly how much of this amount it would borrow. Independent consultants last week said Spanish banks could need up to €62 billion to survive.
After Monday’s announcement, Moody’s credit agency hit 28 Spanish banks with new credit downgrades, leaving three-quarters of the industry in junk-bond status.
Moody’s cited the banks’ exposure to bad property loans and the lowering of Spain’s overall sovereign rating, which it cut less than two weeks ago by three notches to Baa3 – just one notch above junk-bond status.
Spanish banks slumped on the Madrid stock exchange yesterday after the downgrade. Among those in junk-bond status, Bankia shares slumped 4.17 per cent to 91.9 cents by late morning, Banco Popular tumbled 1.46 per cent to €1.82 and CaixaBank fell 1.49 per cent to €2.445.
Banco Santander, the eurozone’s number one bank in market value, was downgraded two notches to Baa2 – still higher than Spain itself because of its international operations. Santander’s stock gained 0.63 per cent to €4.81 yesterday morning.
Spain’s second bank, BBVA, tumbled three notches to Baa3, maintaining its investment grade.