Bankia shares mount strong rally as stock recoups 23 percent of its value

Bankia’s shares recovered strongly on Friday after heavy losses since the departure of former chairman Rodrigo Rato earlier this month and the government’s subsequent decision to partly nationalize Spain’s fourth-biggest lender, which is heavily exposed to the ailing real estate sector.

Bankia lost 28 percent of its market value at one point in Thursday’s session on reports, subsequently quashed by the bank and the government, of a run on its deposits.

Despite Moody’s decision overnight to downgrade the ratings of 16 of the country’s banks, including sector leaders Santander and BBVA, the sector as a whole was bolstered by figures released Friday by the Bank of Spain showing that up to the end of March, deposits in the banking system had in fact increased.

Bankia’s shares closed up 23.49 percent at 1.756 euros, with its own brokeage arm particularly active in trades, and with reports of bank employees buying shares. However, Bankia is still down 53 percent from its listing price of 3.75 euros, leaving some 350,000 retail investors, including new chairman José Ignacio Goirigolzarri, with latent losses. Goirigolzarri declared to the National Securities Commission (CNMV) that he owns 23,000 Bankia shares.

Bankia is still down 53 percent from its listing price of 3.75 euros

Among the rest of the sector, Santander put on 2.97 percent, BBVA gained 3.69 percent, while Popular was up 1.31 percent. The blue-chip Ibex 35 added 0.44 percent to 6,566.70 points.

Spain’s risk premium also steadied. The spread between the yield on the benchmark 10-year government bond and the German equivalent narrowed by five basis points to 484 after having hit a new euro-era record high of 507 basis points on Wednesday.

A government source on Friday said it had appointed US investment bank Goldman Sachs to assess it and assigned a valuation to Bankia parent Banco Financiero y de Ahorro (BFA). The government plans to convert a 4.464-billion-euro loan granted to BFA by the state’s Orderly Bank Restructuring Fund (FROB) into shares, which will give it control of BFA and also of Bankia.

Moody’s cut Santander, Caixabank and BBVA’s ratings by three notches to A3 and those of Banesto and Banco Popular by one notch to the same level, which is also that of Spain’s sovereign debt.

Moody’s cited adverse operating conditions, the economic downturn, an ongoing crisis in the property sector and the reduced capacity of the government to help out these banks as some of the reasons for the downgrades.

“Banks will continue to face highly adverse operating and market funding conditions that pose a threat to their creditworthiness,” the ratings agency said. “The Spanish economy has fallen back into recession in first-quarter 2012, and Moody’s does not expect conditions to improve” this year.

The Bank of Spain said Friday that bank deposits at the end of March were up 0.7 percent from the previous month at 1.16 trillion euros, although compared with a year earlier the figure was down four percent.

The Bank of Spain also said that the non-performing loan ratio of the sector climbed from 8.30 percent in February to 8.37 percent in March, its highest level since August 1994.