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BAD BANK

Spanish bank bad loans surge to record high

Bad loans at Spanish banks struck a new record high in September, official data showed Monday, despite the near completion of a €41 billion eurozone-financed bailout of the battered financial sector

Spanish bank bad loans surge to record high
Photo: Dominique Faget/AFP

Risky loans, mostly linked to the collapsed property sector, climbed by 6.9 billion euros from the previous month to an unprecedented €187.8 billion ($254 billion) in September, a Bank of Spain report showed.

The bad loans rose to 12.68 percent of all credit extended by banks in Spain in September from 12.14 percent in August, representing a fourth consecutive record high.

Last year, the eurozone agreed to extend a rescue loan of up to €100 billion to shore up the balance sheets of Spain's banks, swamped in bad loans since a property bubble imploded in 2008 plunging the country into a recession.

Spain, the eurozone's fourth-largest economy, has drawn €41.3 billion from the rescue loan.

Despite the persistently high level of bad loans, Prime Minister Mariano Rajoy's government last week said it would exit the eurozone-funded banking bailout in January.

Economy Minister Luis de Guindos said in Brussels that Spain would not request fallback assistance from the European Stability Mechanism, a rescue fund set up to provide a safety net for heavily-indebted governments.

While applauding Spain's decision for the signal sent to markets, eurozone finance ministers called on Madrid to push forward with reforms to address the country's economic challenges, budget shortfalls, high debt, and mass unemployment.

European Union chiefs said Spain's draft 2014 spending plans placed it "at risk of non-compliance" with its deficit-cutting targets. Spain has agreed to respect EU-norms by reducing the deficit to less than three percent of total economic output by 2016.

Spain suffered a double-dip recession after the 2008 property collapse, emerging gingerly from the last downturn with 0.1-percent economic growth in the third quarter.

Economists warn of threats to its economic recovery, however, and say that the unemployment rate — running at 26 percent in the third quarter of 2013 — will remain painfully high for years to come.

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CRISIS

Judge frees bank boss after court rejects probe

A Spanish judge ordered Thursday the release from jail of the former head of Spanish savings bank Caja Madrid, who is under investigation for alleged mismanagement at the lender, a judicial source said.

Judge frees bank boss after court rejects probe
Former Caja Madrid chairman Miguel Blesa was the first major banking figure to go behind bars in Spain's banking saga. Photo: aditza121/Flickr

Miguel Blesa, who has links to senior members of Spain's governing Popular Party, is accused of leaving Caja Madrid saddled with huge losses because of an ill-advised takeover by the lender in 2008 of the City National Bank of Florida, which was caught up in the US subprime mortgage meltdown later that year.

The 65-year-old was held in jail for a night in mid-May and released after posting bail of 2.5 million euros ($3.2 million).

Judge Elpidio Jose Silva on June 5th sent Blesa back to jail without bail citing new evidence in the case.

But on Thursday the judge ordered Blesa's release after a Madrid provincial court annulled a decision to re-open a probe into a loan of €26.6 million ($35.6 million) to Gerardo Diaz Ferran, a former head of the Spanish business lobby who was also a board member of Caja Madrid.

"The release order has been sent. He will be released in the next few hours," a judicial source told AFP.

The probe into the loan had served as the basis of the investigation into mismanagement at Caja Madrid.

Blesa was the first major banking figure to even briefly go behind bars in the course of Spain's banking saga.

He chaired Caja Madrid from 1996 to 2009 and left before the bank was merged with six others to form Bankia as part of a major overhaul of Spain's financial sector.

Bankia was nationalized in 2012, prompting Spain to turn to its eurozone partners for tens of billions of euros of emergency aid to rescue the financial sector.

That bailout fuelled angry popular protests in Spain, where the recession brought on by the financial crisis has driven unemployment above 27 percent.

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