Spain is about to receive an emergency disbursement from the 100 billion-euro ($123 billion) bailout of its financial system because of restrictions the European Central Bank imposed on bank borrowing, according to a person familiar with the matter.
The ECB last month applied limits on how much it will lend banks against government-guaranteed bonds. The rule change meant Spain had to ditch a plan for nationalized lender Bankia group to get a loan from the Frankfurt-based central bank, said the person, who asked not to be named because the matter is private.
Bankia group, formed in 2010 from the merger of Spain’s troubled savings banks, will get the first portion of the country’s European Union cash imminently, the person said. The rescue program always included a 30 billion-euro tranche to be paid out first and “mobilized in any contingency,” according to the agreement document dated July 16.
“Spain needs the money for Bankia as soon as possible because the uncertainty just makes it expensive for the government to raise money in the bond markets,” said Arturo Bris, a professor of finance at the IMD business school in Lausanne, Switzerland.
The ECB didn’t change the loan collateral rules with Bankia in mind and the lender never formally asked the central bank for such a loan, said a Bank of Spain official, who asked not to be named in line with its policy. The recapitalization in advance of Bankia isn’t justified by the group’s liquidity-related problems, he said.
Bankia was hoping to get the loan to finance its liquidity plan announced in June. An earlier proposal, scrapped a month earlier, would have involved recapitalizing Bankia using Spanish Treasury debt.
Spain’s bonds have suffered from the burden the country must itself bear to prop up the banking system. The government’s 10-year security rose today, pushing the yield 11 basis points lower to 6.52 percent as of 5:30 p.m. in Madrid, compared with the record-high 7.75 percent reached on July 25. A basis point is 0.01 percentage point.
Bankia SA, the listed unit of Bankia group, advanced 19 cents to 1.39 euros, valuing the lender at 2.78 billion euros, data compiled by Bloomberg show.
The bank’s 500 million euros of 4.375 percent senior, unsecured bonds due February 2017 rose 1.9 euros, the most since March, to a one-month high of 71.84 cents on the euro, according to Bloomberg generic prices. The notes have been climbing since reaching a three-year low of 63.73 cents July 26.
As far as the EU bailout is concerned, Cezary Lewanowicz, a spokesman for the European Commission in Brussels, said Spain hasn’t asked for the initial 30 billion-euro payment to be mobilized. He declined to comment further.
Officials at the ECB in Frankfurt, and Bankia and Spain’s Economy Ministry in Madrid, wouldn’t comment.