Member Article

Shares in Bankia collapse following Spanish government bailout

Following their suspension on Friday, shares in Bankia fell 30% this morning on news that the troubled bank is to receive a €19 billion government bailout. The aid would come in the form of Spanish government debt, which would been given by Spain to Bankia in return for shares in the bank, which could then park these bonds with the ECB as collateral for cash. The indirect injection of taxpayer cash will eventually lead to a government holding of around 80%-90%, in a nationalisation that is substantially dilutive to the existing shareholders. Whilst the shares were trading around over €1.30 today after a partial recovery, the stock faced a raft of analyst downgrades some of which valued the shares around 20-30 cent. Some analysts also expressed concerns that the assets provided to Bankia could deteriorate in value, and hence reduce the health of the bank, should the Spanish government get into more financial stress.

After the bank’s equity, the news was most influential in fixed income markets, where the yield on Spanish 10 year government debt traded at around 6.5%, reaching a record high against the German bund. It was perhaps unsurprising given the rapid deterioration of Bankia that investors were concerned that Spain may be on the hook should other members of the banking system get into trouble.

For pan-European equities however, Spanish concerns were overshadowed by perceived positive news from Greece where polls showed that the centre-right, pro-bailout New Democracy party edged into the lead against the left-wing Syriza. Equity markets welcomed the developments which would initially indicate that the Greek population were waking up to the fact that, despite the severe austerity, prospects for the country may be even worse if Greece were to leave the currency union. Indices in the UK, France and Germany were all higher by around 1% in morning trade.

These markets did however lose some momentum in the afternoon, and actually dipped into negative territory before the close. The FTSE 100 closed marginally higher at 5356, whilst indices in France and Germany were more firmly in negative territory, as were those still trading in the US. After a tumultuous day, shares in Bankia close 13% lower at €1.36.

This was posted in Bdaily's Members' News section by James .