(Adds confirmation of share valuation, details of capital hike,
By Julien Toyer and Carlos Ruano
MADRID, March 22 Spain took the last steps to
clean up nationalized lender Bankia on Friday, valuing
its shares at a bare minimum of 0.01 euro, while pressing ahead
with a partial merger of the bank that could slow its recovery.
The new valuation, confirmed by Spain's rescue fund FROB,
was imposed by the European Union as Bankia prepares to get a
capital injection of 10.7 billion euros (US$13.91 billion) out
of European rescue funds. It would wipe out tens of thousands of
investors who bought shares in the bank.
Last year, Bankia became Spain's biggest-ever bank failure.
The state took over and applied to Europe for a 41 billion euro
rescue for Bankia and other banks that held hundreds of billions
of euros in bad debt from when the country's property market
crashed in 2008.
In 2011, some 350,000 Spaniards bought shares in Bankia,
which was created by a merger of seven savings banks.
When Bankia went public, its shares were worth 3.75 euros.
On Friday they closed at 0.25 euro. The price has not fallen to
0.01 euro because some shareholders expect the bank to return to
After the bailout request and meeting strict conditions such
as imposing steep losses on small savers who had invested in the
bank, the announcement of the valuation on Friday was meant to
mark a fresh start for the lender.
While the bank is showing tentative signs of recovery,
official and banking sources said the government had hired an
international consultant to create a plan to partially merge
Bankia with CatalunyaBanc and NCG Banco, two other rescued
lenders, which it wants to operate under a single holding
The plan emerged unexpectedly earlier this month after the
Bank of Spain failed to auction off CatalunyaBanc. The cancelled
sale was a sign of possible cracks emerging in the country's
ongoing financial reform.
Bankia's executives have not yet been briefed on the plan.
"It is an unexpected distraction. Things were starting to
fall in line well," said a banking source with knowledge of
Bankia in February said it would return to profit this year
after deposits rose at the end of 2012 and it began cutting
The other two banks, however, are expected to report losses
in 2013 and 2014. Also, the government could end up having to
renegotiate with the EU some terms of the rescue of the banks,
if their operations are joined.
The government insists it would not fully merge the three
banks and that the lenders would join forces on marketing,
negotiating terms on major purchases and other
It also says that creating a single holding operated by
Bankia's top executives would not weigh on the lender's capacity
to apply its European Union-agreed roadmap.
"Absolutely not. This will add value, not cut value," a
source close to the government said, adding that the European
authorities have been briefed on the plan.
"It makes sense for Bankia to lead the project because it
has an impeccable management team and it also has the biggest
The process is still at an early stage and could change over
time. Spain's financial sector restructuring has gone through
several stages over the last five years and the model of
grouping several commercial brands under a single holding failed
when it was tried previously.
It led banks involved in such operations to later fully
merge, helping shrinking Spain's banking sector from more than
45 lenders to just over 10 today.
A source at Spain's bank rescue fund said the consultant
would look into a medium-term strategy for the three banks
involving combining some of their operations.
The source declined to give any other details.
Bankia and its BFA parent group have received a total of 18
billion euros in rescue money.
After the new valuation on Bankia's shares, the bank will
receive 10.7 billion euros of the rescue money as new capital.
This will take place in May, Bankia said in a statement.
The remaining European rescue money will remain in Bankia's
holding company, BFA.
After the capital injection, Bankia will do a conversion of
100 existing shares into 1 new share, which will be worth 1 euro
In May, Bankia will also issue more shares worth 4.8 billion
euros, to buy out holders of subordinated debt and hybrid debt.
Those investors will also take losses on their investments.
Minority shareholders, who previously held 52 percent of
Bankia, will end up with a joint ownership of 0.13 percent of
Holders of hybrid debt known as preference shares and of
subordinated debt will end up owning about 30 percent of Bankia,
and the state 70 percent.
(Editing by Fiona Ortiz, Elaine Hardcastle and Richard Chang)