The clouds over the initial public offerings of Bankia and Banca Civica are getting darker.

The clouds over the initial public offerings of Bankia and Banca Civica are getting darker. The two caja savings banks, who have to raise equity to meet new capital requirements, already faced investor scepticism over their real-estate exposure. Now they also have to battle the storm over the country’s sovereign risks.

Fears of Spain following Greece, Portugal and Ireland into a bail-out increased on Thursday after the Greek situation remained unresolved at talks in Paris and following Moody's downgrade of Portugal. The country sold five-year bonds but had to pay 4.8%, the highest level for a five-year issue since 2002.

The country’s benchmark 10-year bond yields jumped to 5.7%, the highest since May 2000, according to Bloomberg data. Portugal was pushed into a bail-out after its borrowing costs surpassed 7% for weeks, considered an unbearable cost for almost any country.

Despite the negative sentiment, Bankia and Banca Civica are pressing ahead with their simultaneous road shows. Moody’s said yesterday it rated Bankia as “Baa2,” two levels above “junk,” and also placed a negative outlook on the lenders’ credit rating, due to the quality of its books. Blackrock, the world’s biggest investor, placed a “strong dislike” rating on Bankia, according to a document seen by Financial News.

Moody’s said: “Moody's believes that the bank's capital base continues to remain vulnerable to further expected losses under Moody's scenario analysis, especially given Spain's uncertain economic outlook and the uncertainties within the real-estate sector. Furthermore, Moody's expects that this very challenging domestic operating environment will continue to subdue growth and exert downward margin pressures arising from the high level of non-earning assets and increased funding costs. This is likely to limit internal capital generation from recurrent sources.”

The domestic situation could worsen as other cajas may have to be nationalised, after failing to raise the funds they need to meet the new capital requirements. CAM, UNIM and Catalunya Caixa are particularly under threat, more than three bankers involved in the domestic banks’ restructuring process told Financial News. More than a dozen potential investors have looked at CAM, including Barclays Bank, but none was interested, the three bankers said.

Investors fear the cajas have not revealed the true value of their loan books.

Antoni Valverde, a partner at Freshfields in Barcelona, said: “The cajas have not written down all of their bad debts as Spanish law doesn’t require them to do so until an insolvency process has been declared.”

The tension is unlikely to decrease next week, as the new European Banking Authority is expected to unveil the results of the Europe’s bank stress tests.

Almost one-third of Europe’s 91 banks may need more help, Moody's said yesterday.

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