MADRID: Spain’s Bankia will wipe out the investments of 350,000 shareholders, many of them small savers and pensioners, after it emerged that losses on bad loans at the troubled bank were even worse than expected.
The measure will hit small investors drawn in by aggressive marketing just last year after Bankia was formed from a merger of provincial savings banks. But it is described by officials as vital if the company, which was nationalised in May, is to return to profit in order to be sold on again.
Bankia will receive ¤18bn of European Union money by today and launch a capital increase in the first half of January when current shareholders will lose practically their entire investment, a source close to the Bank of Spain said.
“Are we looking into leaving shareholders with something? Yes. How much? That’s too soon to say. Will it be very little? For sure,” the central bank source said on condition of anonymity.
“But that will be purely symbolic. I can assure you they will lose up to the shirt on their back.”
Under the EU plan to prop up Spain’s banking sector, devastated by a burst real estate bubble, shareholders must be the first in line to accept losses. That was the case in Ireland, another victim of the global credit crisis, where shareholders in Anglo Irish Bank were left with nothing.
Bankia had negative equity - or an excess of debt over assets - of ¤4.2bn, Spain’s bank rescue fund, known as FROB, said on Wednesday. That measure will be used to help determine shareholder losses. Bankia’s parent company BFA had negative equity of ¤10.4bn. How much shareholders will lose will be unveiled when the capital increase takes place in January following discussions with EU authorities, the source said.
Hundreds of thousands of Spaniards, some of them retirees with little awareness of financial affairs, ploughed savings into Bankia shares when the bank was listed in July 2011. The stock has lost more than 80 percent of its value since then. Small savers also bought billions of euros of other Bankia instruments, such as preference shares or subordinated debt, on which they will also suffer steep losses.
“It seems to be to have been managed extraordinarily badly. It is a total cock-up,” said Enrique Marquez, 66, a retired technician who invested ¤7,000 in ordinary shares and more than ¤70,000 in preference shares with Bankia.
“I’ve been duped on the preference shares and I’ve been duped on the ordinary shares. It’s been an abuse of trust,” added Marquez, who said he had been told by his bank manager the stock could be very profitable in the medium term. Many of Bankia’s more than 20,000 employees also invested in the shares in the 2011 initial public offering and are set to lose their money even as thousands face job cuts enforced as a condition of receiving European aid.
Reuters
