Spain’s banks fell deeper into a loans crisis and Greece tottered closer to bankruptcy on Friday as markets swung wildly ahead of a Camp David summit to prevent a euro zone catastrophe.
Infected by a sense of crisis rippling from Athens across the euro zone, volatile trading gripped Spain’s markets, with its most troubled bank, Bankia, leaping more than 25% just one day after plummeting.
Spanish banks reported that doubtful loans had climbed to €148 billion ($188 billion) in March, equal to an 18-year record 8.4% of the total, central bank data showed.
Formed in 2010 from a merger of seven savings banks, Bankia alone had problematic property assets amounting to €31.8 billion at the end of last year, Bank of Spain figures show.
“Investors are now starting to believe that the more money some of the peripheral states have to pour into the banks, the more likely it is that the states themselves will need a bailout,” said Capital Spreads analyst Angus Campbell.
Meanwhile, Germany tried to shore up confidence. “We currently have no reason to doubt ... that Spain will manage to overcome the crisis with its own means,” finance ministry spokeswoman Silke Bruns said in Berlin.
Greek voters rejected painful spending cuts in a deadlocked May 6 poll and they are expected to do so again in a June 17 election. Such as result would cast in grave doubt its latest EU-IMF bailout package worth €240 billion ($300 billion) and, officials have warned, could lead to its exit from the euro zone, with unknown consequences.
Fitch Ratings agency cited the prospect of another inconclusive election and Greece being forced out of the euro zone as it cut its rating on the country's debt to “CCC” or vulnerable to default on Thursday.
US President Barack Obama is to raise actions Europe could take on its debt crisis at a Group of Eight (G8)summit in Camp David starting Friday, as Washington seeks more growth-oriented policies. “People are waiting for weekend's G8 meeting -- to see if we can extract from it some kind of strong action by the central banks, and especially the European Central Bank,” Pablo del Barrio, analyst at Spanish brokerage XTB Broker, said.
The International Monetary Fund said it would hold off on official contacts with Greece until after the elections.
The IMF, which along with the EU is all that stand between Greece and a disorderly default, has warned that no new funds will be released without progress on pledged reforms.
Moody’s downgrades 16 Spain banks
Moody’s cut the debt ratings of 16 Spanish banks by one to three notches, citing the effects of the ongoing recession and the reduced creditworthiness of the Spanish government.
The action hit the leading bank, Santander, with a two-notch downgrade to A3, and the No. 2 BBVA, was lowered by three steps to A3. Two other large banks, Banesto and CaixaBank, were cut to A3.
Moody’s cited “renewed recession, the ongoing real estate crisis and persistent high levels of unemployment” as reasons. It blamed the “reduced creditworthiness of the Spanish sovereign, which weighs on banks’ standalone profiles and affects the ability of the government to support banks.”
Banks are suffering from the sharp deterioration of asset quality, with non-performing loans to real estate companies “increasing rapidly.”