MADRID — Spain’s borrowing costs neared record highs Monday as investors fretted over how the government would find additional money to bail out Bankia, the country’s largest mortgage lender, and other troubled banks.
Shares in Bankia plunged almost 30 percent early Monday after trading opened, only to recover some of the losses by mid-afternoon. The shares had been suspended Friday before a meeting of the bank’s board at which members called for an additional €19 billion, or about $24 billion, of capital after reviewing Bankia’s latest losses.
While the government in Madrid has insisted that it could afford to salvage Bankia and other troubled institutions without outside intervention, most analysts anticipate that ballooning mortgage defaults, coupled with Spain’s own punitive borrowing costs, will force Madrid to seek emergency funding for its banks from the European Union.
Spain seized control of Bankia on May 9, two days after replacing the bank’s management. Last Friday Bankia not only asked for billions in additional help but also revised its accounts, posting a 2011 loss of almost €3 billion instead of the €309 million profit that it reported in February.
Bankia’s collapse was described on Monday by Daragh Quinn, banking analyst at Nomura in London, as G.U.B.U. – grotesque, unbelievable, bizarre and unprecedented – using an acronym that was coined in Ireland, whose economy was sunk by the collapse of its banking sector.
Luis de Guindos, the Spanish economy minister, forecast this month that the total cost of rescuing Bankia and other Spanish banks would not exceed €15 billion. Mr Quinn from Nomura, however, estimated that recapitalizing Spanish banks would cost an additional €50 billion to €60 billion.
Madrid does not have that kind of money at hand, having depleted the funds that it had previously set aside to cover earlier meltdowns at some smaller banks. Bankia itself previously received a €4.5 billion emergency loan, bringing the total cost of its rescue to €23.5 billion, including the €19 billion requested Friday.
Meanwhile, the government could soon get saddled with three other banks — CatalunyaCaixa, Nova Caixa Galicia and Banco de Valencia — that have been put up for sale, so far unsuccessfully.
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