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Investors are worried about how Madrid will fund the record bailout of Bankia and whether Europe will be on the hook for the Spanish banking sector.
Shares in Bankia plunged nearly 30 percent today on the first day of trading after announcing it would need an additional 19 billion euros, or nearly $24 billion, in government funding.
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According to the Telegraph, Spain’s borrowing costs soared to the highest level this year as investors fretted over how Madrid would fund the bailout – the biggest ever bank rescue in the country’s history – and whether the European Union would be on the hook for Spain’s stricken banking sector.
Prime Minister Mariano Rajoy sought to calm nervous investors, saying there would be no European “rescue for the Spanish banking system,” CBC News reported.
But his words fell on deaf ears. Shares in Bankia closed down 13.38 percent to 1.36 euros as the yield on Spain's 10-year government bond yield rose 0.18 percentage point to 6.47 percent, a new 2012 high, according to the Wall Street Journal.
Bankia, which has 32 billion euros in toxic property assets following the collapse of the country’s property bubble, received 4.5 billion euros in government funds earlier this month.
Bankia president Jose Ignacio Goirigolzarri said Sunday the bank’s responsibility was “not to return that capital, but to be able to generate value and profitability” for that government contribution.
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