Forbes – by Agustino Fontevecchia
While investors across the globe applaud Bernanke and other central bankers for pushing stock markets to record highs, retail investors and savers in Spain are facing massive losses. Markets appear to have forgotten Europe’s sovereign debt crisis and the woes in Spain: on Tuesday, new shares in nationalized financial institutionBankia began trading, closing the day at €0.57 ($0.74), marking a more than 80% drop from their floating price in 2011 when the banking group was formed. The average Spaniard is suffering, and the situation has gotten to the point where on Sunday, a police officer stabbed a former Bankia employee four times after a heated discussion related to the sale of preferred shares in the failed banking group.
It’s not pretty in Spain these days. A contracting economy and a spiraling unemployment rate are taking its toll on the population. And few things can illustrate that as well as Bankia, the nationalized financial group that is currently the fourth largest bank in Spain by market capitalization.
After having received more than €15 billion ($19 billion) in capital from the federal government, Bankia executed a recapitalization plan that culminated in floating 11.5 billion shares which began trading on Tuesday. Conditioned by the Troika (IMF, European Central Bank, and the EU Commission), Bankia forced its shareholders to take losses to finance a bailout, and after engineering an exchange of preferred shares and convertible bonds, priced the new stock at €1.35 last month ($1.75).
All along, the exchange was a trap for retail investors. Last week, the stock fell more than 50% when institutional investors were allowed to sell out of their already losing positions. Savers and retail investors had to wait until Tuesday, when the stock fell as low as €0.475 ($0.61) at one point. Spanish daily El Mundo reports that institutional investors held positions worth about €1.85 billion ($2.4 billion) in Bankia, compared to nearly €5 billion ($6.5 billion) for the 190,000 people that bought up the preferred stock and hybrid instruments, convinced they were making a good investment with their savings.
Bankia’s story is a tragic one. Begot from the merger of seven regional banks or cajas, Spain’s fourth largest bank unveiled the largest ever corporate loss in the country’s history in March, at €19.2 billion ($25 billion) for the full year. Shares in Bankia had originally been floated at €3.75 ($4.85) in 2011, with investment banks targeting domestic buyers after seeing limited interest from large institutional investors. With a construction and property-related portfolio that hit €37 billion ($48 billion), and having become the third-largest holder of Spanish debt, Bankia collapsed under the weight of its books as the European sovereign debt crisis, and Spain’s own real estate implosion, intensified.
While tourists flock to the beautiful city of Barcelona, or the sandy beaches of Mallorca to enjoy the European summer, the average Spaniard is hurting. I have previously reported of suicidesdue to bank foreclosures. Over the weekend, a police officer directly attacked a former Bankia employee who reportedly sold him €300,000 worth of preferred shares. El Mundo reported the cop, nearly 40, stabbed the 55-year old former bank employee four times after a heated discussion in Valencia, Spain’s third largest city; Bankia issued astatement repudiating the aggression.
The Spanish financial industry is in tatters, but it’s also recovering. Having gone through one of the most intense restructuring of any nation across the Eurozone, the largest institutions are beginning to stake their ground and take advantage of a decimated opposition. Banco Santander , BBVA, and CaixaBank have emerged as the three largest players. Yet they have dramatically underperformed markets, major European peers like Deutsche Bank and UBS, and their American counterparts like Citigroup and JPMorgan Chase.
Bankia is in a league of its own. It has survived because of a European bailout in the heat of last year’s intensification of the sovereign debt crisis plaguing the Old Continent. Regulators, fearing a new Lehman Brothers-like situation could throw off the entire Eurozone, moved to secure financing and keep the bank alive. They changed management and injected capital. Beyond facing massive losses, Bankia has taken with it hundreds of thousands of Spanish savers. Regulators are hoping the institution can be turned around and eventually made profitable. Spanish retail investors better keep their fingers crossed, if they can hold on to their shares for long enough.
OUTSTANDING!!! This is something I would love to see become an international trend.
Unfortunately, the article says nothing about the bankster dying, so I’m assuming he survived.
Damn shame.