The cost of insuring against a Spanish default surged to a record on concern a bailout of Bankia SA (BKIA), the nation’s third-biggest lender, won’t fend off a banking crisis triggered by bad real estate loans.
“While there is no danger of an imminent collapse at Bankia, there is a risk that it becomes a zombie bank, which has to rely on the European Central Bank to fund it over the long term,” said Roger Francis, an analyst at Mizuho International Plc in London.
There is growing speculation Spain may become the fourth European nation to seek a rescue as its lenders become overwhelmed by 184 billion euros ($239 billion) of what the nation’s central bank terms “problematic” assets linked to property. Of the 38 billion euros of real estate the Bankia group held at the end of 2011, about half was classed as either “doubtful” or at risk of becoming so, according to the lender’s annual report.
Credit-default swaps insuring Spanish government debt rose 18.5 basis points to 517.25 basis points a 12:55 p.m. in London, according to data compiled by Bloomberg. Spanish 10-year government bonds extended a decline, pushing the yield on the securities above 6 percent for the first time since April 27. The yield climbed 17 basis points, or 0.17 percentage points, to 6.02 percent.
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