Shares in state-owned Spanish lender Bankia tumbled on Tuesday after billions of new shares flooded the market as part of a multi-billion euro cash injection, with little hope of a quick recovery amid tough business conditions. More than 11 billion shares issued as part of a 15.5 billion euro ($20 billion) recapitalisation of the bank started trading at 0700 GMT, in what was meant to be a new beginning after a 24 billion euro bailout last year which eventually triggered a European rescue of Spain's financial system.
The stock is likely to remain under pressure as the bank, now Spain's fourth-biggest by market capitalisation, faces mounting challenges to implement its restructuring plan. Analysts predict the shares could settle at a price ranging from 0.40 euro to 0.60 euro, below the initial trading price of 0.6 euro, the 1.35 euros at which they were issued and their book value of 1 euro.
At 0710 GMT, the shares were down 8.67 percent at 0.548 euros following an initial slump of 20 percent at the open. Spain's bluechip index Ibex was up 1.47 percent with Bankia's peers rebounding sharply from last week's losses. Bankia, formed from the merger of seven former regional savings banks, has lost 99 percent of its value on the stock exchange since its listing in July 2011.
It became the symbol of Spanish banks' woes last year, accounting for the bulk of the 42-billion-euro European rescue Spain sought to prop up lenders brought low after a decade-long property bubble burst in 2008. Its troubles have caused widespread outrage in Spain as hundreds of thousands of small savers, often retired people with little or no knowledge of finance, lost their money by investing in the bank when it was floated or by buying complex debt products that it sold between 2007 and 2009.
Many of those debt products are now being converted to shares as part of the latest restructuring designed to clean up its balance sheet. Spain's bank restructuring fund, which owns 68.4 percent of the bank and had said it could increase its stake by another 1.6 percent, did not buy any stock on Tuesday, a source said. About 3 percent of the free float of 31.6 percent had changed hands by 0900 GMT.Most of it is owned by former holders of preference shares and hybrid debt, often small savers who were mis-sold these complex financial instruments and were forced to swap them at discounts for ordinary shares. Many were expected to sell these new shares on Tuesday to try to recoup part of their money, adding downward pressure to a stock which lost more than 50 percent of its value last week when institutional investors triggered a mass sell-off as they received their shares.