MADRID — The Spanish government’s decision to take control of the country’s fourth-largest bank highlights the problem gripping the nation’s financial system. Banks are taking huge losses on real estate loans that have soured, but the deeper the government gets involved in providing aid, the greater the risk that it will need an international bailout.
Financial stocks in Madrid soared Thursday, a day after the government said it would take a 45 percent controlling stake in Bankia SA, which has the highest exposure to bad property loans of all Spanish banks following a crash in the construction sector that started in 2008.
But because the government — already strapped for cash — will finance the takeover, investors continued to worry that the country might eventually need rescue aid itself. Spain’s sovereign borrowing rates remained uncomfortably high Thursday, suggesting traders are wary of its financial future.
Because the fates of Spain’s banking sector and its government are so closely linked, analysts say a new approach — possibly with financial aid from abroad — may be needed.
“Once again the government has reacted late and badly,” said Javier Flores, an analyst in Spain with Asinver investment group.
