Bankia Slumps as Recapitalization Set to Wipe Out Investors

Bankia SA, the Spanish lender that needed the biggest European bailout, slumped 41 percent in Madrid trading after the terms of a planned recapitalization left investors holding shares that will be almost worthless.

Bankia, Spain’s fourth-largest bank, slid 10.4 euro cents to 14.7 euro cents, extending losses this year to 62 percent. The shares have lost 96 percent of their value since July 2011, when the bank sold shares at 3.75 apiece in an initial public offering targeting its own clients.

Some of the lender’s debt will be converted into equity in a 15.5 billion-euro ($19.9 billion) recapitalization plan announced by Spain’s bank rescue fund last week. Bankia’s losses drove Spain to request European aid for its banking industry last year amid concern that government finances were at risk of contagion.

“Current shareholders will be wiped out,” Espirito Santo Investment Bank analysts including Juan Pablo Lopez said in an e-mailed report dated yesterday. Two planned capital increases imply the number of shares in Bankia will rise to more than 1.2 trillion from 2 billion, they said.

The recapitalization will cut the nominal value of Bankia shares to 1 euro cent from 2 euros. Once the reduction in the value of Bankia shares is in place, the rescue fund, known as Frob, has said it will consolidate the shares 100-to-1 to give them a nominal value of 1 euro apiece.

Bankia will then convert 10.7 billion euros of so-called contingent convertible bonds and 4.8 billion euros of hybrid securities including preferred shares into stock.

Frob said the reference price for the capital increase after the reverse stock split will be 1 euro plus an issue premium. The subscription price may be 1.27 euros per share, given the 4.15 billion-euro negative equity value for Bankia set by Frob, Carlos Joaquim Peixoto, an analyst at Banco BPI SA in Oporto, Portugal, said in a research note today.

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