GO
Loading...

Bankia Debt Holders May Lose Up to 50 Percent

Reuters
Wednesday, 28 Nov 2012 | 1:53 AM ET

Junior debt holders in Spain's Bankia could lose as little as 10 percent of the face value of their investment as a condition for the nationalized lender to receive European aid, a source involved in the talks said.

Bloomberg | Getty Images

The likely loss will range from 10 percent to around 50 percent, a level that Reuters reported last week.

Many junior debt holders, who rank behind other creditors in Spain's state-rescued lenders, are retail clients who entrusted their life savings to the banks, making any loss they suffer as part of the bailout a hot political issue.

State-owned banks are negotiating with the European Union to receive funds from a 100 billion euro ($127 billion) credit line as part of an international bailout.

Economy Minister Luis de Guindos said on Monday the government would tap just around 40 billion euros of the European credit line, with the rescued banks accounting for the vast majority of that.

Enforced losses on junior bondholders will form part of recapitalisation plans put forward by the rescued banks - Bankia, NovaCaixaGalicia, Catalunya Banc and Banco de Valencia - as a condition of receiving the EU aid, alongside job cuts.

The Bank of Spain said on Tuesday it had approved the plans of the state-owned banks, without giving any details of what the measures entailed.

It said it expected the European Commission to give its definitive approval of the plans on Wednesday.

The source with knowledge of the Bankia talks said subordinated debt with fixed maturities was set to lose 10 to 20 percent of its face value, with a discount of 40 to 50 percent applied to perpetual subordinated debt and preference shares.

"A deal has been clinched on swapping these (debt)instruments with Bankia shares and the discount applied will depend on the instruments," the source said on condition of anonymity.

Spain's shrinking banks set for more mergers The source warned that last-minute talks could still change these figures.

Bankia, which sought a 23.5 billion euro bailout from the state in May, declined to comment. Bankia shares closed up almost 5 percent ahead of the expected approval of its plan. The lender has lost over half its value since it was taken over by the state in May.

The stock market regulator estimates retail customers account for almost all of the 5.5 billion euros in preference shares in circulation.

Bankia accounts for over half of these. Nationalized banks are bracing for thousands of job losses as a condition of receiving aid, with Bankia and NovaCaixaGalicia expected to cut up to a third of their workforce.

Both banks declined to comment.

Catalunya Banc and Banco de Valencia were put back on the block by the country's bank restructuring fund this month.

Spain's third biggest bank La Caixa will buy Banco de Valencia for the nominal fee of 1 euro it was confirmed on Tuesday.

The deal will see the country's bank restructuring fund pump 4.5 billion euros into the damaged nationalized bank.

The FROB will also assume up to 72.5 percent of losses on certain assets over a ten-year period in Banco de Valencia.

Featured

  • Pro-Russian activists seized the main administration building in the eastern Ukrainian city of Donetsk.

    Deadly clashes in eastern Ukraine have spiked fears of all-out war in the region. So who are the armed, flag-waving rebels who appear to be behind it all?

  • An employee wipes a TV screen in a shop in Moscow, on April 17, 2014, during the broadcast of President Vladimir Putin's televised question and answer session with the nation.

    Russian President Vladimir Putin warned of possible disruption to Europe's gas supply on Thursday, as the U.S. confirmed it would send additional military support to Ukraine.

  • The recovery in the EU's car industry carried on through March, providing some much needed cheer for automakers.

  • Amazon is facing fresh strikes in Germany after pay negotiations with the country's second-largest union Ver.di broke down, the Financial Times reports.

Contact Europe News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Europe Video

  • Jan Dunning, CEO of St Petersburg-headquartered hypermarket chain Lenta, says the situation in Ukraine has had no impact on the group, as consumer confidence remains unaffected in Russia.

  • Vincent Deluard, European strategist at Ned Davis Research Group, says the strong euro is a problem for the region's companies, especially for the large exporters.

  • European shares closed higher on Thursday as investors brushed aside concerns regarding Ukraine and focused instead on Wall Street earnings and the latest U.S. jobs data.