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Markets fall on Spain banking crisis

Thursday, May 17, 2012 - 02:00

May 18 - Moody's downgrades 16 Spanish banks adding to the country's economic woes as Madrid's stock market opens in red and the risk premium shoots up again. Ciara Sutton reports

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Moody's ratings agency has downgraded 16 Spanish banks including its two largest lenders - Santander and BBVA. It said the government's ability to support the sector has weakened. Worried customers have withdrawn over a billion euros from banks this week, as the country's exposure to the Greek crisis brings fears over the future of the single currency. Borrowing costs shot up at an auction of Spanish bonds on Thursday, and its troubled banks suffered a double blow, with shares in part-nationalised Bankia diving. Data released also showed Spain is back in recession. Its banks are saddled with bad loans after its property boom collapsed. Chris Scicluna is from Daiwa Capital Markets. (SOUNDBITE) (English) HEAD OF ECONOMIC RESEARCH AT DAIWA CAPITAL MARKETS, CRIS SCICLUNA, SAYING: "The Spanish economy is under significant stress, and that stress and that stress is only going to get greater no matter what happens in Greece. The adjustment to the property boom ahead of the crisis is being very modest so far, there is probably several years of adjustment to come in the Spanish property sector, in the extent of which house prices have to fall, the extent of bad debts to be realised in the banks." Markets fear Spain may need an international bailout as it struggles to keep the sector afloat. World markets have been spooked by the deepening banking crisis. The FTSEurofirst 300 fell for a fifth day in early trade, taking its weekly loss so far to five percent. And the euro hit a four month low against the dollar. Under pressure from the European Union to clean it's financial sector up, Spain is expected to name independent auditors to probe bad loans and property holdings, to determine how much money would be needed to bailout the country's banks. Ciara Sutton, Reuters

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Markets fall on Spain banking crisis

Thursday, May 17, 2012 - 02:00