Trading in shares in Spain’s Bankia has been suspended in Madrid. It asked for them to be suspended ahead of a board meeting this afternoon to reformulate its accounts for 2011 and submit a plan to shore up its finances.
The bank has now formally requested the government for a bailout of 19bn euros ($24bn; £15bn). Also on Friday, there were appeals for help from another Spanish institution: its wealthiest autonomous region, Catalonia.
“We don’t care how they do it, but we need to make payments at the end of the month,” said Catalan president Artur Mas. “Your economy can’t recover if you can’t pay your bills.”
Catalonia represents one-fifth of the Spanish economy. It has to take out 13bn euros of loans this year to refinance maturing debt, not to mention funding whatever deficit it has for the current year.
The regions have been having trouble borrowing money commercially, so the central government has given them a special credit facility from the Official Credit Institute (ICO).
Those credit lines run out in June and the government has said it will come up with a new mechanism to provide credit for the regions, but there has been some nervousness amid reports that there is disagreement within the government about what form the guarantees should take.
Bankia, which is Spain’s fourth-largest bank, was part-nationalised two weeks ago because of its problems with bad property debt.As part of the process, the government injected 4.5bn euros into the bank.
Economics professor Pedro Schwartz said Spain’s bank reorganisation fund, Frob, only has 6bn euros left, so the government will have to find the additional money to support Bankia elsewhere. “It won’t try to find that money by issuing more bonds – because the bonds are very expensive.”
“The feeling of the market here is that it might have to be a rescue from the European Union. That is casting a shadow over the whole financial sector in Spain at the least agreeable moment ,” said Prof Schwarz from University of San Pablo-CEU in Madrid.
On Friday, the yield on Spanish government bonds, which are taken as an indicator of how much it would cost the state to borrow money, rose to 6.3% having started the day below 6%.