Spain Central Bank Reveals Record $82 Billion Capital Flight In March

Public concern over the health of Spain’s financial institutions caused nearly 66.2 billion euros ($82 billion) to be withdraw from the country over the month of March, said the Bank of Spain on Thursday, as the country faces a financial shortfall that threatens to send government borrowing costs to euro-era highs.

Over the first quarter of the year, 97 billion euros ($120 billion) was sent abroad from Spain – with withdrawals in March alone hitting figures that had not been seen since official records began in 1990.

Public concern over the health of Spain’s financial institutions caused nearly 66.2 billion euros ($82 billion) to be withdraw from the country over the month of March, said the Bank of Spain on Thursday, as the country faces a financial shortfall that threatens to send government borrowing costs to euro-era highs.

Over the first quarter of the year, 97 billion euros ($120 billion) was sent abroad from Spain – with withdrawals in March alone hitting figures that had not been seen since official records began in 1990.

The figure was also a stark contrast to data from just a year ago, when the Bank of Spain had actually reported a net 5.4 billion euros entry of funds during the same month.

Speaking to Reuters, Spain’s Economy Minister Luis de Guindos tried to quell concern over the alarming rate of capital flight by claiming that the data was more a reflection of the troubles of the banking sector to fund itself externally than that of deposits flying abroad.

However, the Financial Times pointed out that the Spanish central bank data would corroborate with earlier financial assessments, which showed how both private and corporate investors were selling off Spanish assets at record pace.

[quote]“My concern is that we haven’t yet seen the most recent numbers, which could be far worse… We are seeing a perfect storm,” said Raj Badiani, an economist at IHS Global Insight, to FT.[/quote]

Foreign investors are also rapidly withdrawing their support for Spanish government funding. According to figures from Barclays Capital, as cited by The Telegraph, foreign holdings of Spanish sovereign debt fell from 40 to 30 percent over the last year.

Consequently, Spain’s 10-year debt risk premium is now at 520 basis points, which is close to the euro-era record.

Earlier in the day, European Central Bank president Mario Draghi also took the time to criticise Spain’s handling of the problems at Bankia, the country’s third largest bank.

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The Spanish government had announced last week that it would inject an additional 19 billion euros in Bankia, after insisting in February that no more public money would be needed to save its banks. According to Draghi, Spain’s repeatedly failures in underestimating their financial problems though had caused the growing financial problems at Bankia.

[quote]“There is a first assessment, then a second, a third, a fourth. This is the worst possible way of doing things. Everyone ends up doing the right thing, but at the highest cost,” he said.[/quote]