Spanish bank stocks fell, with Banco Santander SA unit Banco Espanol de Credito SA reaching its lowest intraday level since at least 1989, as concern about the government’s ability to rein in its deficit drove up financing costs.
Banesto fell as much as 10 percent, its biggest intraday decline since 2002, before paring losses to close at 2.10 euros, a 0.8 percent drop. Banco Popular Espanol SA slumped as much as 8.5 percent to a 21-year low before closing down 3.2 percent at 1.32 euros.
Surging sovereign debt costs for Spain are lowering the value of banks’ bond holdings and raising the prospect that their businesses will be damaged if the government is forced to take more austerity measures. The ratio of bad loans to total lending was close to a record high at 8.95 percent in May as loans and deposits at banks also shrank.
“News from Spain keeps getting worse and that affects the banks directly,” said Peter Braendle, who helps manage about $55 billion at Zurich-based Swisscanto Asset Management. “It affects them on the debt side but also because of the impact on their banking business if Spain has to do more on the deficit.”
Spanish banks pared losses after the stock market regulator imposed a short-sale ban today on all shares. Santander, which fell as much as 5.1 percent earlier in the session, closed up 1 percent at 4.23 euros.
The yield on Spanish five-year debt surged to 7.32 percent from 6.80 percent on July 20. The extra yield investors demand to hold Spanish 10-year securities instead of bunds widened to 630.18 basis points from 609.96 on July 20. A basis point is a hundredth of a percentage point.