Bailout fears spark Bankia shares dive

Concern over the bailout plans for troubled Spanish lender Bankia and the country's ability to finance itself sent the nationalised bank's share price plummeting and Spain's borrowing costs soaring today.

Bankia's shares were down 21 % to 1.23 euro after trading following the bank's announcement on Friday that it will need 19 billion euro (£15.2 billion) in state aid - the country's biggest bailout - to shore itself up against its bad loans. The shares had closed at 1.57 euro before trading was suspended Friday.

Investors remained nervous over Spain's finances and whether it might soon join the ranks of Greece, Ireland and Portugal and seek an international bailout.

The interest rate, or yield, for 10-year bonds on the secondary market - a key indicator of market confidence in Spain's ability to raise funds - jumped 17 basis points in morning trade today to 6.46%. A rate of 7% is considered unsustainable in the long run.

In comparison, Germany's bonds, seen as a safe haven investment, were at 1.38%, 508 basis points lower than Spain's.

Trading on Madrid's main Ibex 35 share index was down 1 %.

Among the chief concerns surrounding Bankia's request for state aid is just how Spain plans to fund the bailout.

Bankia S.A., a fusion of seven savings banks - was one of the banks hardest hit by Spain's property collapse over the past four years.

It is estimated to have 32 billion euro (£25.6 billion) in toxic assets. The Bank of Spain had already agreed to inject Bankia with 4.5 billion (£3.6 billion) in rescue funds last June.

The size of the bailout figure came as something of a shock on Friday and opposition political parties are demanding the government explain how the bank got into such a state.

Bank of Spain estimates show Spain's banks are sitting on some 180 billion euro (£144 billion) in assets that could cause them losses.

The government fears the cost of rescuing the most vulnerable banks could overwhelm its own finances, which are already strained by a second recession in three years and an unemployment rate of nearly 25%.

Spain has long denied it will follow Greece, Ireland and Portugal and seek international help but the conservative government of Prime Minister Mariano Rajoy has called on the European Central Bank must do more to alleviate its exorbitantly high borrowing costs.

AP