Spain’s financial sector is in an unholy mess and about to get messier, after Spain’s financial services regulator, CNMV, said that trading of shares should stop because of ‘circumstances that may affect the normal share trading.’ This is a suitably vague statement for a regulator that obviously doesn’t want to prompt a run on the bank, but there is no doubt that Bankia is in severe difficulty.
Just last week, credit rating agency Moody’s downgraded more than a dozen Spanish banks, reflecting the parlous state of their finances and the country’s economy more widely. Bankia was part-nationalised just a couple of weeks ago because of bad property debts. Speculators are predicting the bank will ask the state for a bailout of around €15bn (£12bn) later today, once a board meeting has been held to thrash out the details and work out exactly how bad the situation is.
If agreed, this will be the second tranche of support, as the government already gave it €4.5bn as a loan which was then converted into shares – hence the ‘part-nationalisation’. The bailout exercise to be confirmed this afternoon will be a further disaster for existing shareholders, whose stock will be diluted to oblivion.
In some senses Bankia was a doomed bank anyway: it was formed by the merger of seven Spanish savings banks, all of which were struggling regional businesses. When it was first created, the company’s shares traded at around €3.75, but shortly before the suspension, they had dropped to €1.57.
Whether or not the recapitalisation is approved (or is enough to rescue the bank) remains to be seen, but speculators are predicting that a wider sovereign bailout will be required for Spain if it cannot keep its banks afloat. Expect more of the same for weeks to come.