25 May 2010

Bank bail-out prompts further fall in euro

8:39 am on 25 May 2010

The euro is down again after the government in Spain had to rescue one of the country's biggest regional lenders.

The euro fell two cents against the dollar on Monday. Spain's three biggest banks, Santander, Banco Popular and BBVA, also saw their shares fall by 2% - 3%.

Cajasur was taken over by Spanish authorities on Saturday after talks to merge it with a profitable bank ended.

The BBC reports Cajasur ran into trouble due to its exposure to the Spanish housing market. It had invested heavily in the property sector, causing a boom in construction before its collapse following the financial crisis.

But the market's collapse has now left lenders with debts worth 445 billion euros, according to Goldman Sachs.

The Bank of Spain has taken over the running of Cajasur, giving it access to 550 million euros ($US686 million) in emergency funding, after a merger between Cajasur and savings bank Unicaja fell though at the end of last week.

Cajasur currently operates 486 branches.

The move has affected the currency markets, with the euro down against both the pound and the dollar.

The euro was down two cents against the dollar at $1.2372 and was down nearly a cent against the pound, with a pound buying 1.1627 euros.

Last week Spain approved plans for a 15 billion euro package of austerity measures designed to reduce its debts.