* Catalonia pressures for debt backing
* Cost rises on Bankia rescue bill
* S&P cuts rating on Bankia, others
By Fiona Ortiz and Sonya Dowsett
MADRID, May 25 Financial troubles at a big
Spanish bank and one of the country's richest regions,
Catalonia, piled on problems on Friday for the Madrid government
and for investors who question whether it can pay its debts
without help from euro zone allies.
Bankia SA, Spain's fourth biggest bank and newly
nationalised, asked for a bailout of 19 billion euros ($24
billion) to repair losses from a property crash - the biggest
Spanish bank rescue ever.
Meanwhile, the president of Catalonia, one of the wealthiest
of Spain's 17 regions, said high interest rates demanded by wary
creditors were making it hard for his administration in
Barcelona to raise funds.
He called on the central government in Madrid to guarantee
joint bonds issued by regional authorities or otherwise
underwrite regional financing.
"We don't care how they do it," Artur Mas told reporters,
saying the Spanish economy would not grow if the regions
struggle to pay monthly bills to suppliers.
Investors believe the banks' capital shortfall and a credit
crunch for regional governments could force the euro zone's
fourth-largest economy to seek international aid - a move that
would throw further doubt on the future of the currency union.
Adding to a miserable day for Spanish investors, Standard &
Poor's lowered its ratings on the debt of Bankia and four other
banks and said it was taking a dimmer view of Spain's economy:
"Spain is entering a double-dip recession that will likely
trigger a large increase in the volume of problematic assets
that the financial system will accumulate in 2012 and 2013,
which in turn will lead banks record high credit provisions,"
the ratings agency said in its report on the banks.
BANKIA NEEDS RISE
After Bankia's new management team analysed the financial
position of the bank at a board meeting, the lender asked for 1 9
billion euros i n state rescue money.
Earlier this week, Economy Minister Luis de Guindos, who
once pledged that no public money would be used to bail out
banks, told a congressional committee the state would have to
put at least 9 billion euros into Bankia.
The government has already spent 4.5 billion euros to prop
up Bankia, bringing the state bill up to 23.5 billion euros.
Bankia also restated its 2011 accounts on Friday to give a 3
billion euro loss compared to a previously reported profit, as
it dramatically wrote down bad loans, holdings in Spanish
blue-chips, and repossessed property.
One London-based analyst said the government's handling of
Bankia had undermined confidence in whether the figure announced
would cover losses. "Whatever they say, people are going to
think it's not enough," said the analyst, who spoke on condition
of anonymity. "The process has been going on for so long."
Spain is nationalising the bank, which holds some 10 percent
of the country's total deposits, after it was unable to handle
heavy losses from the property bubble that burst in 2008.
The government insists that Bankia's woes do not reflect the
wider financial system in Spain.
Spain will have to go to the markets to raise debt to put
into Bankia at a time when its borrowing costs are high.
Catalonian leader Mas's comment helped to drive the euro
currency to a 22-month low. Spain's country risk, as
measured by the spread between German and Spanish bonds jumped
to 496 basis points from around 460.
Treasury Minister Cristobal Montoro has pledged to come up
with a way to back regional debt by July. On Friday, Deputy
Prime Minister Soraya Saenz de Santamaria said the central
government was still looking at options.
The regions have 36 billion euros of debt maturing this year
and have been priced out of international bond markets.
Catalonia's debt rating has been cut by S&P credit rating agency
to one notch above junk.
Mas said Catalonia's options for refinancing were central
government bonds or debt guarantees, high-priced short-term bank
debt or the limited market for selling patriot bonds to
While struggling to put a precise number on a banking sector
clean-up, Spain has also revised up its 2011 deficit figure
several times as additional spending from regional and local
governments has come to light.
The conservative government of Prime Minister Mariano Rajoy
plans more than 45 billion euros in savings this year to try to
bring the deficit down to 5.3 percent of GDP, a mission many say
Spain has gone through four different stages of rescues of
its banks, none of which has completely convinced investors that
the clean-up has been deep enough.
Now it may end up creating one nationalised bank out of its
failed lenders, including Bankia, if the state cannot find
buyers for state-rescued banks like mid-sized Catalunya Caixa.
Two sources close to the situation said that the FROB bank
restructuring fund, which has taken over several banks to resell
them, was considering delaying the auction of Catalunya Caixa
and smaller savings bank Banco de Valencia.
Under pressure from the European Union, the government has
hired independent auditors to produce a report on the financial
system. International institutions such as the European Central
Bank and International Monetary Fund will scrutinise the audit
to give it credibility.