Investors hold breath for run on Spanish banks, but no lines yet

Bankia
MADRID -- Spaniards laze at sidewalk cafes on a street dotted with banks. The biggest bank bailout in Spanish history doesn’t seem to have affected this weekend crowd: There are no lines of people trying to take out their money.

But if Europe's debt crisis has barely diminished the crowds in Madrid's popular tapas bars and shops, Spain's own banking crisis just might.

Investors are holding their breath for a run on Spanish banks as depositors quietly worry whether their money is safe. Electronic transactions are up slightly, with money flowing from smaller Spanish banks to larger ones, and even to accounts outside the country, though the volume is far less than in more deeply troubled Greece.

"The moment they start saying, 'Don't worry, your money will be safe,' is the moment you should withdraw your money from the bank," said Julian Mezzadri, 37, who took all of his savings out of a Madrid bank two weeks ago, on news of a government bailout for Spain's biggest real estate lender, Bankia.

He said he and his wife now keep their money hidden.

Mezzadri was born in Argentina, and even though he moved to Spain when he was just 3, he is haunted by his native country’s 2001 economic collapse. "I know things are different here, but I've also seen what can happen," he said. "I'm not taking any chances here."

Such fears could sabotage the system. On May 17, Bankia's shares temporarily lost nearly a third of their value after a Spanish newspaper reported that more than $1 billion had been withdrawn from the bank in the previous week. In a hastily called news conference, the government denied that there had been any run on the bank, and shares recovered some, but not all, of their losses.

On Saturday, Bankia's new chairman, José Ignacio Goirigolzarri, acknowledged that there had been “a certain tension” regarding deposits for a few days earlier this month. But he told reporters that the situation had calmed, and predicted that by next month, Bankia's deposits might even exceed 2011 levels.

Bankia is Spain's fourth-largest bank overall, but the largest in property lending. Weighed down by unpaid construction and mortgage loans, Bankia needs recapitalization because of the loss in market value of its real estate assets, Goirigolzarri said.

He spoke several hours after the Bankia board asked the government late Friday for nearly $24 billion -- more than double what the government had forecast just two days earlier would be needed to rescue the bank. Many worry that Spain simply can't afford it.

"No one knows. The government will have to resort to the [Spain's bank recapitalization fund] and contributions from the deposit insurance fund," said Juan José Toribio, an economist at Spain's IESE Business School.

MORE:

Five Spanish banks downgraded 

Stocks fall as Spanish bank teeters

Europe debt crisis dragging world economies down

--Lauren Frayer

Photo: The headquarters of the Spanish bank Bankia in Madrid on Friday. Credit: Angel Navarrete/Bloomberg

 
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