Spain seeks to calm markets after sell-off

By Leslie Crawford in Madrid

Financial Times

Pedro Solbes, the Spanish finance minister, and the Bank of Spain, the central bank, moved to calm financial markets on Monday, saying no Spanish banks had sought emergency financing from the European Central Bank.

Spanish bank shares fell sharply on fears that an international credit squeeze might damage the lending activities and profitability of financial groups.

The share sell-off followed a British press report quoting Adam Applegarth, chief executive of Northern Rock, the beleaguered UK mortgage lender, as saying that three Spanish banks had sought ECB help last week.

Mr Solbes ruled out the possibility that any Spanish financial group might be affected in coming days by liquidity problems such as those experienced by Northern Rock. “There are no parallels between what has happened in the UK and the situation here,” he said on Spanish radio.

The Bank of Spain said in a statement: “No Spanish institution has used any emergency financing facility. Spanish institutions, in common with other European banks, continue to use the ECB’s routine liquidity facilities. This does not mean that they are experiencing any difficulty.”

Spain’s 10-year property boom has transformed Spanish banks into some of the biggest issuers of mortgage-backed bonds in Europe. An almost insatiable demand for credit in Spain has also made banks big borrowers in European capital markets.

As a result of the current turmoil in financial markets, Spanish banks may find it more difficult to fund themselves abroad. It will certainly be more expensive.

Last week, Banco Popular cancelled the placement of €2bn ($2.8bn, £1.39bn) worth of mortgage-backed securities. Ahorro Titulización, an investment vehicle that belongs to a group of Spanish savings banks, also cancelled a securitisation issue.

Spanish bank regulators on Monday insisted that the financial system was solid, with well-capitalised, profitable banks, low rates of loan defaults and high levels of provisions against bad debt.

Bankinter, a medium-sized bank, was the hardest hit in the share sell-off, falling 5.9 per cent on Monday. Banco Popular fell 2.9 per cent, with the largest banks, Santander and BBVA, shedding 1.6 per cent and 1.9 per cent respectively.

“I don’t know why our share price is being hammered,” Jacobo Diez, chief financial officer of Bankinter, told the Financial Times. “Our funding needs are fully covered for 2007. We have no problems with liquidity. I think the stock markets are being moved by uncertainty and fear.”

At Banco Popular, Roberto Higuera, chief financial of-ficer, said: “This is not a liquidity crisis. It is a crisis of confidence. No one knows who is holding subprime risk. The only thing I can tell you is that it is not in Spain.”