Last updated: November 28, 2012 8:00 pm

Bankia debtholders face bailout losses

Bankia’s subordinated debt and hybrid securities holders will face large losses on their investments as part of a restructuring demanded by Brussels in return for eurozone aid.

The investors – including tens of thousands of retail clients – will have to absorb losses of between 46 and 14 per cent as part of the group’s capital raising exercise, the nationalised Spanish bank said on Tuesday.

More

On this story

On this topic

IN Banks

The European Commission has urged such a burden-sharing by bondholders as part of a €100bn rescue package for the Spanish banking sector agreed with Madrid this summer.

However, this proved highly controversial in Spain where the government feared the political backlash from inflicting losses on tens of thousands of small savers.

Bankia said holders of preferred shares would face a writedown of 39 per cent, those that own perpetual subordinated debt 46 per cent and investors in subordinated debt with a maturity date would have to swallow a loss of 14 per cent.

About €30bn of such products were sold to individual savers before the crisis by small Spanish banks including Bankia, according to estimates by Barclays.

The writedowns at Bankia are part of a restructuring plan announced on Wednesday that includes 6,000 job cuts and the sale of €50bn of assets.

The restructuring and burden sharing were demanded by Brussels in return for a capital injection that Spain’s fourth-largest lender is set to receive from the EU’s permanent rescue fund.

The nationalised bank, which has come to symbolise the country’s broader economic woes, forecast a €19bn loss this year but hopes to return to profitability next year.

It also said it would cut 39 per cent of its branches. “It’s a demanding but realistic plan,” said José Ignacio Goirigolzarri, Bankia’s chairman. “Bankia is a company that with this aid is capable of recovering and we are going to fight so that it does.”

“The approval of the restructuring plans ... is a milestone in implementing the memorandum of understanding between euro area countries and Spain,” said Joaquín Almunia, the EU’s competition commissioner.

Spain’s banking sector faced its worst crisis since the second world war following the bursting of the country’s property bubble, forcing its government to request a bailout for its banks in June.

Bankia will end up with €36bn in state and eurozone aid once the latest capital injection is made, according to the commission.

Catalunya Banc, NCG Banco and Banco de Valencia – the other banks being recapitalised – will receive €9.1bn, €5.4bn and €4.5bn, respectively, from the European Stability Mechanism.

Banco de Valencia will be acquired by Caixabank and will cease to exist as an independent bank, as it could not be restored on a standalone basis, said Mr Almunia.

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.