In Spain, the newspaper Expansión reported in the European morning that PM Mariano Rajoy's government might ask the EU and the IMF for funds for the restructuring of the Spanish financial sector. The rumor was later denied by the Minister for Communication Martinez Castro, who said that Spain does not seek any external aid.
As the US session came to an end, the Financial Times carried another headline concerning how Spain is expected to set aside as much as €50bn in new bank provisions as it tries to minimize risks on its toxic property assets. This action and others to follow come as part of a new round of strict reforms for the country’s financial sector.
As read in the Financial Times: "The €50bn figure, equivalent to about 4 per cent of Spain’s GDP, is higher than private expectations by bankers. Some analysts had speculated that the Popular party government of Mariano Rajoy, prime minister, would set up a large, state-funded “bad bank” like Ireland’s Nama to absorb the non-performing assets of lenders."
In addition, as UBS reports, "there were reports that a Spanish region needed help from the central government to repay an overdue loan. This was also denied, but it underscores that even though the Spanish national balance sheet appears to be robust, contingent liabilities from the banking sector and regions may weigh on sentiment."
In the next few weeks the European Commission and the Spanish government will discuss the measures which are necessary to correct the above-target 8% deficit. One of the EC's recommendations is a VAT hike.
Risk of contagion on a possible default by Hungary
In Hungary, the government saw its bond yield balloning and the currency traded to an all-time low against the EUR as traders fear the EU-member state may be the first to become officially bankrupt and default on its debt unless the IMF comes to the rescue, an unlikely outcome in the next six months, according to market sources.
"The Hungarian government, which has defied Brussels by introducing a raft of radical constitutional reforms, called off its plans to swap old debt for new because it would be too expensive" explained the UK Telegraph, adding that there are also fears about the exposure of European banks to Hungarian debt - especially banks in Austria and Italy.
Bond auctions in Germany/Portugal end at the higher end of expectations
Germany managed to sell 4.06 billion euros worth of 10-year bonds in an auction held on Wednesday. The demand was higher than during the last auction in November, while the average yield decreased to 1.93% from the previous 1.98%.
A bond auction also took place in Portugal where the government sold securities maturing in April 2012 at an average yield of 4.346%, in comparison with 4.873% it had to pay at the December 7 auction. The demand exceeded 2.4 times the amount of bills on offer.
Unicredit tumbles around 10% on heavy shares discount
The Unicredit SpA shares have fallen around 10% today after the European opening bell, following news releases that the bank is offering a heavy share discount of 43% from current prices as part of its plan to recapitalization.
The bank's board of directors set the price per share for capital increase at 1.943 Euro. The ratio is 2 to 1 in order to increases Unicredit capital in €7.5 billions. Investors will be able to buy 2 new shares for every one held.
After falling around 9.0% the share was suspended for trading initially but currently it is again in the market but falling in a range between 8.5% and 9.5% so far today.
Market's fears regarding problems of eurozone banks have begun again. "We have a problem with one or more EU banks. Any ideas?" asked Fabrizio Goria, Italian journalist in his Twitter account today.