Spain’s Bankia has reportedly asked the government for a 19 billion euro bailout.
That would take the total cost of rescuing the country’s fourth-biggest bank to around 24 billion euros.
The state bailout is needed because Bankia is stuck with billions in property loans that are never going to be repaid as well as repossessed homes.
The markets are worried about how big Bankia’s black hole really is and concerned about Spain’s entire banking sector.
Chris Scicluna, Head of Economic Research at Daiwa Capital Markets said: “The Spanish economy is under significant stress, and that stress is only going to get greater what ever happens in Greece.”
He added: “There is probably several years to come of adjustment in the Spanish property sector, in terms of the extent of which house prices have to fall, the extent of bad debts to be realised in the banks.”
Bankia is one of the worst examples, but investors remain unconvinced that a slew of clean-ups and rescues has fully addressed Spanish banks’ problems.
Under pressure from the European Union, the government has now hired independent auditors to try to work out how bad things are.
More money for failed banks is bound to anger austerity-numbed Spaniards who protest on an almost daily basis outside financial institutions and government offices.
At the same time the ratings agency Standard & Poor’s cut the rating of five Spanish banks, including Bankia.