By Serena Ruffoni LONDON -(Dow Jones)- The cost of insuring against a default of the major Spanish banks dropped dramatically Monday as euro-zone leaders agreed a EUR100 billion loan to support the country's struggling banking sector. At around 1100 GMT, the cost of insuring the senior debt of Banco Bilbao Vizcaya Argentaria, or BBVA (BBVA.MC), was 28 basis points tighter at 710 basis points. The CDS spread of the other Spanish major bank, Banco Santander Central Hispano (SAN.MC), was 24 basis points tighter for the senior, at 384 basis points, and 36 basis points tighter for the subordinated at 590 basis points. European leaders granted Spain the availability of up to EUR100 billion in loans, more than the EUR37 billion the International Monetary Fund estimated would be necessary, in an adverse economic scenario, to shore up the country's ailing banking system. The reaction of investors in bank debt to the news was enthusiastic, according to traders. The battered senior debt of both Spanish and Italian banks was bought. ING strategists note that, though details of the plan are still thin, the bank recapitalization funding plan is clearly positive news for the sector, and an immediate boost to confidence, which should "allay market concerns for now". Italian banks' CDS spreads also tightened on the news. Unicredit's senior debt CDS spread was 27 basis points tighter at 498 basis points, and Intesa Sanpaolo's CDS spread was 9 basis points tighter at 457 basis points. Credit default swaps are derivatives that function like an insurance contract for debt. If a borrower defaults, sellers compensate buyers. Write to Serena Ruffoni at serena.ruffoni@dowjones.com
