Spain's Liberbank Jumps After Emergency Ban on Short Selling

  • Regulator CNMV bans short sales to stem market contagion
  • Shares fell 41 percent last week as Banco Popular was rescued

Regulators moved quickly Monday to contain collateral damage from the near collapse of Banco Popular Espanol SA, imposing an emergency ban on short sales of Spain’s smallest publicly traded lender.

Liberbank SA surged as much as 36 percent in Madrid trading and was trading up 29 percent at 88 cents as of 1:40 p.m. That recoups some of the 41 percent of market value the bank lost last week after regulators ordered the sale of Popular following a run on deposits.

The bank marks the first time Spain has prohibited short selling of just one one security. Valid one month, the measure means investors can’t start new short positions or add to existing ones. About 1.4 percent of Liberbank’s shares were on loan to short sellers as of May 26, according to the latest available data at the regulator CNMV. That compares with 24 percent for the most-shorted stock on the Spanish market -- Distribuidora Internacional de Alimentacion SA.

Short sellers borrow shares in order to sell them and buy them back at a lower price, profiting from the difference — unless the stock rises. The last time CNMV banned the practice was during the country’s debt crisis in 2012 when all stocks were implicated. A year earlier, shorts were banned on financial securities.

“Last week’s punishment of Liberbank’s shares was excessive as its situation is not identical to that of Popular,” Renta 4 banking analyst Nuria Alvarez said by phone. “The ban on short selling will probably limit the volatility on the shares.”

Banco Santander SA bought Popular for a nominal one euro last week after European Central Bank declared the bank a lost cause and imposed losses on stockholders and many bond investors. Investors dumped Liberbank shares on fears Spain’s smallest publicly traded bank may face some of the same challenges as Popular.

“It can make sense for market regulators to introduce bans to stop panic selling,” Manuel Conthe, former chairman of CNMV, said in a phone interview. “They have realized that some banks could be in a sort of death spiral.”

Monday’s rally reduced Liberbank’s decline for this year to 11 percent. The Bloomberg Europe 500 Banks and Financial Services Index is up 7.8 percent in 2017.

Popular’s bail-in, “has greatly increased the sensitivity of the Spanish market and of international investors,” ESMA said. “There is a risk that possible similar cases could arise in the future.” 

“Liberbank is a solid bank as its solvency ratios exceed regulatory requirements and we have a liquidity position that’s among the best within the Spanish traded banks,” Chief Executive Officer Manuel Menendez said in a statement sent by the bank late Sunday. “Recent volatility in the shares has been affected by external elements, of speculative nature, as there haven’t been any facts that justify such an abrupt change in the price of shares.”

The lender, which emerged from the merger of three local saving banks in 2011, was listed two years later. With about 900 branches and 4,000 employees, it does business mainly in regions such as Asturias, Extremadura and Cantabria, the home markets of the founding saving banks.

“The bank is seen as the most risky institution following Popular’s downfall. There are some key differences between their stories,” Carlos Garcia, a research analyst at Kepler Cheuvreux, said in a research note Monday. Liberbank has no negative equity, there are no relevant litigation problems and 90 percent of Liberbank’s deposits are covered by the deposit guarantee fund, he said. Garcia upgraded Liberbank to “hold” from “reduce.”

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE