FROB bursts Bankia share-trading bubble

The decision of the Orderly Bank Restructuring Fund (FROB) to warn Bankia shareholders that they will have to assume losses as part of the cleaning up of the bank has put an end to the continued upward rise in its share price since July 25.

The shares of the nationalized bank, which is awaiting 19 billion euros of public money to guarantee its solvency, had tripled their stock market value in that time for no objective reason other than speculation over the imminent arrival of European bailout funds.

The concern that the upward trend might trap minority investors prompted the FROB to issue a rare warning before the market opened on Friday, reminding investors that Bankia and the Banco de Valencia, which both form part of the nationalized Banco Financiero y de Ahorros (BFA) entity, are undergoing “a rigorous process of accounts auditing, revaluation of their net worth — it lost 3.318 billion euros in 2011 — and restructuring of their own resource base and commercial activity.”

The statement had an immediate effect on the stock market, where after rising again after opening, Bankia shares slipped back by 27 percent. By midday the fall had subsided to 8.72 percent, however, and Bankia shares closed the day at 1.21 euros, down 19.83 percent.

The FROB warning also served to burst the speculative bubble surrounding the Banco de Valencia share price, which in Thursday’s session alone had risen 135 percent.

Following its statement, the FROB — which is the biggest shareholder in Bankia following the bank’s nationalization in May — warned that according to the conditions imposed by Brussels for the bailout, “shareholders will have to participate in covering the cost of the cleaning-up processes of the entities that require public help.”

Two very different groups need to be established among these shareholders, however. One comprises the bank customers who put their savings into the stock market launch of the bank — which began trading at 3.75 euros — at the request of bank staff and have already lost more than half their money despite the upturn of recent days. The other, according to Miguel Ángel Rodríguez of brokerage house XTB, are the professional investors who are very aware of the evolution of the bank’s stock market value and wanted to exploit the upturn to make a profit from a company that, after all, is bankrupt and surviving thanks to public funds.

Despite the wild fluctuations that have affected Bankia shares, the National Securities Commission (CNVM) has refused to suspend their trading. According to a spokeswoman, the market as a whole was aware of all the information about their value, meaning the conditions were not fulfilled to take a decision that, in any case, negatively affects investors.