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FTSE slides on fears over Spain's banks, Greek politics

Britain’s FTSE 100 slides to a four-month low amid concerns over the cost of efforts to rescue Spain’s banks and a political vacuum in Greece.

 
FTSE slides on fears over Spain's banks, Greek politics

Britain’s FTSE 100 slid to a four-month low on Wednesday, amid mounting concerns over the cost of efforts to rescue Spain’s banks and a political vacuum in Greece that has yet again raised the prospect of a disorderly default by the nation.

The UK index of blue-chip shares faded 0.44%, or 25 points, to 5,531 – its lowest since late December – and the All Share index dropped 0.49%, or 14 points, to 2,870. See the FTSE’s performance and the index’s top winners and losers.

Spanish bank bailout

Spanish banks were among the biggest fallers on the FTSEurofirst 300 of top European shares, with Caixabank giving up 6.7% to €2.4 (£1.9) and BBVA shedding 4.7% to €5.

Reuters quoted financial sources as saying earlier that the Spanish government would demand banks set aside €35 billion euros against loans to its moribund building sector, in addition to €54 billion they are already provisioning.

Spain is also set to stage an estimated €10 billion bailout of its most exposed bank, Bankia.

Analysts at Royal Bank of Scotland estimated that the sector faces a €68 billion capital shortfall over the next three years on increasing bad loan provisions and regulatory capital. In a note, they added that capital needs could exceed €98 billion in a deeper recession scenario, with the rescue of Bankia being ‘just the start’.

‘We think public funds alone will not be enough to support all Spanish banks, without severe cost to the Spanish economy,’ they warned.

Spain's IBEX 35 sagged 2.8% to 6,812, a fresh post-financial crisis low, as the yield – or implied interest rate – on benchmark 10-year Spanish government bonds shot up 22 basis points to 6.08%.

Greece coalition talks

Meanwhile, Greece moved closer to a second snap election, as coalition talks foundered and the leader of the country’s conservative New Democracy party condemned calls by the head of the Lefist Syriza party to reject an international bailout.

Most stock markets elsewhere in Europe also fell, as worries over Greece also weighed: France's CAC 40 index was 0.2% lower at 3,119, and the FTSEurofirst 300 index of top European shares inched down 0.3% to 1,015.

However, Germany’s DAX index bucked the trend, adding 0.47% to 6,475.

Weir tanks

Weir Group (WEIR.L) was among the biggest fallers on the FTSE 100, giving up 82p to £15.10, following poor order figures from its oil and gas division.

Financials also featured prominently on the loser board, tracking losses by their rivals on the continent. Lloyds (LLOY.L) gave up 1.2p to 31.3p, and Royal Bank of Scotland (RBS.L) slipped 0.8p to 22.8p.

7 comments so far. Why not have your say?

mikest

May 09, 2012 at 17:58

“Spain is also set to stage an estimated €10 billion bailout of its most exposed bank, Bankia.”

Coincidentally, €10 billion is precisely the amount the Spanish government recently cut from the health and education budgets. Good to see they have their priorities right…….

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Raymond Hurley

May 09, 2012 at 20:45

That is a facile comment Mike.

Neither you, or I, have to take such difficult decisions.

Unpalatable as it may seem to you,the banking sector of each national economy has to be saved.The alternative is much worse.

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exiled yorkshireman

May 09, 2012 at 21:15

Mike - I am sorry I disagree. The public sector in all countries is paid for by wealth creation in the private sector, including banking, via company and personal taxation. Ultimately budgets have to be balanced, unless we return to Europe's old ways of robbing the rest of the world through empires - the world has moved on and that is no longer an option. Defaults, money printing and other tricks are simply short term ploys that disguise the simple fact that we will all take have to take a hit some how or another. The biggest government budgets in most advanced countries are health and education so when we over extend ourselves it is hardly surprising that they will take a seemingly large hit - it just seems like a lot of money.

And finally, cynicism is not clever or a particularly pleasant trait. Sorry for the lecture.

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Prof Eman

May 09, 2012 at 23:23

I think the biggest problem we have is the fact that so many countries have overextended themselves, within our current context, and are all trying to correct matters through austerity at the same time. This only leads to more problems via the paradox of thrift , and through the multiplier effect, leads to more/double dip recessions and then depression. Hence more banks fail leading to more bailouts, which require more funding, leading to more austerity and the cycle repeats itself.

We seem to be heading for a further downward spiral, until our distribution of wealth is in the direction of the lower end , which will promote growth through their increased propensity to spend, who unfortunately seem to be at the sharp end of the cuts.

Sorry to be pessimistic. Perhaps changes for better policies/growth policies will come through the ballott box, starting wirh Greece. Who knows?

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exiled yorkshireman

May 10, 2012 at 00:35

I agree, total reliance on an austerity strategy seems to me at risk of creating a spiral of decline. Perhaps targeted government spending on infrastructure and housing may create jobs and demand for materials and services to kick start economic growth. What we dont want though is "investment" in more public services which is what our last government did (and I distinctly remember Gordon crowing about).

I also wonder whether pension funds investing in housing may be a more sustainable and safer investment model. We just need the nimbys to allow some serious house building in SE England and perhaps a few new towns. The consequences of landlords with a longer term outlook together with looser supply may make housing more affordable and release earnings for spending elsewhere in the economy.

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mikest

May 10, 2012 at 07:49

exiled yorkshireman. I take your point about cynicism - perhaps I have lived too long in Spain……. The fact is that Bankia, along with many other institutions “…….loaned recklessly to local builders. Like other cajas all over Spain, the lenders had local politicians on their boards who steered them into development projects without managing the risk,” to quote a recent Reuters article. Instead of ‘robbing the rest of the world through empires’, Spanish politicians (and bankers) have taken to robbing their own people. I am desperately sorry for the ordinary people of Spain because their political system makes it almost impossible to effect change through the ballot box.

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Prof Eman

May 10, 2012 at 12:47

Just to add to my comments.

Whilst the rich in cash, like big companies, sit on their cash mountains and do not spend instead of investing and thus improving our competitiveness, and adding to growth via the multiplier effect, coupled with making it easier to fire people, all we are going to get is more unemployment, with fewer full time and more part time jobs, all of which will bring down spending and growth.

The chance to get investment moving has been missed in budgets and the Queen's speech. I am afraid that George has unfortunately got it all wrong.

Growth is unlikely to be the reward of current policies.

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