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Bankia Parent BFA Has Negative Value of $13.8 Billion, FROB Says

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Dec. 26 (Bloomberg) -- Banco Financiero y de Ahorros, the parent of Bankia, has negative value of 10.4 billion euros ($13.8 billion), Spain’s bank-rescue fund said, as it pledged to recapitalize all the lenders it controls by year-end.

Bankia, BFA’s listed unit, has a negative value of 4.15 billion euros, the FROB rescue fund said in an e-mailed statement today in Madrid.

BFA-Bankia, the largest recipient of aid from Spain’s European bank bailout, is receiving 18 billion euros of public funds to plug its capital hole. The valuation published today doesn’t affect the size of that shortfall and will be used to help determine how much of the bank will remain in shareholders’ hands.

BFA will carry out a capital increase of 13.5 billion euros, which the FROB will subscribe to using securities issued by the euro region’s European Stability Mechanism rescue fund. ESM securities will also replace 4.5 billion euros of Spanish treasury bills that Spain injected into Bankia in September as a stop-gap measure.

Bankia will issue 10.7 billion euros in contingent convertible bonds, which BFA will buy, and which will convert into ordinary shares early next year as part of a capital reduction. That process, which will take place alongside burden-sharing exercises to impose losses on junior debtholders, will make sure that the “shareholders are the first to bear losses or restructuring costs,” the FROB said.

Bankia was formed in 2010 from the merger of seven Spanish savings banks and traded on the stock market last year as part of the previous government’s efforts to clean up an industry reeling from real estate losses. The shares have lost 82 percent since the initial public offering, which depended on the banks’ retail clients.

The European Commission approved last month the recapitalization plans for the four lenders that will receive 37 billion euros of European aid in the coming days. FROB has agreed to sell Banco de Valencia to Caixabank SA, while NCG Banco and Catalunya Banc remain under state control.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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