Shares in Spanish lender Bankia continue to plummet

Spanish lender Bankia suffered another day of losses on the stock market yesterday as speculation mounted ahead of a capital expansion planned for today.

Spain’s fourth largest bank saw its shares plummet at the end of last week to 65 cents, having lost about 90 per cent of their value since the start of the year. On Thursday alone nearly 50 million shares changed hands, over 40 times the average daily volume of recent months, prompting the National Stock Market Commission (CNMV) to launch an investigation. “I don’t fully understand this,” Bankia chairman José Ignacio Goirigolzarri said, adding that it was necessary to wait for the results of the CNMV inquiry.

The frenzied trading continued yesterday, with the bank's shares dropping again soon after the markets opened to 60 cents, their lowest since the lender listed on the stock market in July 2011 a €3.75.

Hybrid debt
The huge trading volumes and drop in share value of recent days have come just ahead of Bankia's completion of its recapitalisation today through the swapping of hybrid debt for up to around 11 million new shares.

There are concerns that institutional investors may have been anticipating the recapitalisation, carrying out “naked short selling”, an illegal practice whereby traders sell stock they don’t own in order to buy it at a lower price at a later date.

“Bankia is a large company full of uncertainties and that will show up in its market valuation,” said economist Javier Díaz-Giménez of the IESE business school. “We don’t know how long it will be before it stabilises – Bankia’s success is closely linked to the success of the Spanish economy.”

Last year Bankia’s exposure to the country’s burst property bubble unleashed a financial crisis. After pumping billions of public funds into the bank, the government part-nationalised it and it has been the biggest beneficiary of a €40 billion EU bailout for the financial sector.

This year Bankia announced losses of €21 billion for 2012, the worst ever results for a Spanish firm. In recent months the lender has been undergoing a restructuring programme overseen by European authorities and it announced a profit for the first quarter of 2013.

However, the result of a merger of seven regional savings banks, Bankia has been dogged by allegations of mismanagement and corruption.

This month Miguel Blesa, a former head of Caja Madrid, one of the lenders that merged into Bankia, became the first banker to be jailed during the current economic crisis for his role in the purchase of City National Bank of Florida in 2008. He has posted bail and is awaiting trial.

Rodrigo Rato, who was replaced as Bankia chairman last year, is being investigated for fraud along with other former members of the bank's board.

Not sound
The former IMF managing director faces allegations of overseeing the bank's stock market listing despite knowing its accounts were not sound.

Also, the high court is investigating the sale by Bankia to its own clients of preferential shares which have transpired to be virtually worthless. Hundreds of thousands of Spaniards, many of them retired, have lost money through these investments.