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Holders of Bankia hybrid instruments take huge hit

Source: Bankia - Thu 18th Apr 2013
Holders of Bankia hybrid instruments take huge hit

The Bank of Spain's Orderly Bank Restructuring Fund (FROB) on Wednesday unveiled the sharply discounted prices at which nationalized bank Bankia will repurchase hybrid financial instruments such as preferred shares and subordinated bonds in exchange for shares in the lender, with some investors set to lose up to 70% of their initial investment.

Bankia, the amalgam of seven savings banks led by Caja Madrid, was taken over by the FROB in May of last year after coming unstuck because of its exposure to the ailing property sector.

In the case of preferred shares issued by Caja Madrid for an amount of 2.999 billion, investors will receive 62.68% of the nominal value of the instruments, meaning that for every 1,000, investors will receive shares in Bankia worth 626.

However, the FROB also set the price for new shares to be issued by Bankia at 1.35266 euros for every 100 shares, a huge discount to Bankia's closing share price on Wednesday of 0.1712 euros. Once the reinvestment rate is taken into account, holders of Caja Madrid preferred shares will receive the equivalent of only 463 for every 1,000 of their investment.

The FROB said the exchange of these instruments for Bankia shares is compulsory.

As part of Europe's 40-billion loan granted to Spain to help clean up its banks, Brussels insisted that holders of hybrid instruments issued by the savings banks that made up Bankia needed to take a haircut on their investments. Bankia received the bulk of that 40 billion.

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