Spain Brings the Pain to Bank Investors
Government to Impose Heavy Losses on Shareholders and Bondholders, Hire Advisers to Help Manage Lenders' Assets
MADRID—The Spanish government will impose heavy losses on investors at nationalized banks and hire external advisers to help it manage these banks' assets, its latest efforts to overhaul a financial sector battered by the collapse of a decadelong housing boom.
Forcing shareholders and bondholders to share the cost of restructuring the country's five nationalized banks was a politically costly step for the government of Prime Minister Mariano Rajoy, but one that was required under the terms of a European Union bailout of Spain's ailing lenders. The decision to solicit advice in drafting a long-term strategy for these lenders came after the state-backed Fund for Orderly Bank Restructuring failed to sell one of them, midsize Catalunya Banc SA.
The bailout fund, known as the FROB, has decided to hire consultancy McKinsey Co. and investment bank Nomura International PLC as advisers, say people close to the situation.
The restructuring terms announced by the FROB will impose losses of up to 61% at Spain's largest nationalized banks. At Bankia SA, BKIA.MC -39.84% the largest of the institutions and the only one that is publicly traded, shareholders will be nearly wiped out and junior bondholders will lose around 30% of their original investment.
In keeping with EU requirements that investors bear losses before companies receive state aid, the nominal value of Bankia's shares will be reduced to €0.01 from €2 and the nominal value of its preferred shares and subordinated debt will be reduced to €4.841 billion ($6.29 billion) from €6.911 billion, the bailout fund said.
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