Long-suffering Bankia shareholders set for more losses

Thu Dec 27, 2012 12:08pm EST
 
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By Julien Toyer and Sonya Dowsett

MADRID (Reuters) - 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 nationalized in May, is to return to profit in order to be sold on again.

Bankia will receive 18 billion euros of European Union money by Friday 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 4.2 billion euros, 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 10.4 billion euros.

How much shareholders will lose will be unveiled when the capital increase takes place in January following discussions with EU authorities, the source said.   Continued...

 
People are reflected on the windows of the headquarters of Spain's Bankia bank in Madrid November 28, 2012. REUTERS/Andrea Comas