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5 Spanish banks downgraded; Bankia seeks 19 billion euros in aid

By Tiffany Hsu, Los Angeles Times –

LOS ANGELES — The outlook for the Spanish banking system worsened sharply Friday when Standard & Poor’s slashed the credit ratings of five banks and said the country is headed into a double-dip recession. One of the banks, Bankia, asked the government for 19 billion euros in aid — roughly a $23.8 billion boost.

That would make it the largest bank bailout in Spain’s history. Combined with escalating concerns that Greece could exit the euro currency, the news is unlikely to alleviate the heightened anxiety in the eurozone.

Standard & Poor’s, which caused market shock waves last summer when it downgraded U.S. debt, said the Spanish banking sector was vulnerable to turbulence in capital markets because it relies heavily on foreign funding.

The ratings agency dropped Bankia, Bankinter and Banco Popular Espanol into junk status, all with a BB+ score. Banca Civica and Bankia’s parent company, Banco Financiero y de Ahorros, also were lowered.

S&P downgraded ratings on 11 Spanish banks in late April, not long before Moody’s did the same to 16 Spanish banks.

The mass slashing is based on S&P’s concerns “that the correction of the economic imbalances accumulated during the boom is still underway and will have a very high impact on the financial system.”

With real estate week and private companies paying down debt rather than expanding, Spain’s growth potential will suffer, according to S&P.

Bankia asked the Spanish government late Friday for 19 billion euros in rescue funds to supplement its existing 4.5 billion-euro ($5.6 billion) emergency loan.

Earlier this month, Spain agreed to nationalize Bankia after top-level turmoil. Now, the BFA-Bankia Group, citing fears of “potential deterioration of the macroeconomic environment,” will restructure and recapitalize.

“Bankia’s customers can be absolutely certain that their savings are safer and more secure than ever,” said Chairman Jose Ignacio Goirigolzarri in a statement.

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