The timing could not have been worse: just as Spain faces its biggest constitutional crisis in over 40 years with Catalonia’s independence vote, another bank has begun to wobble.
Liberbank, Spain’s eighth largest lender, was spawned in 2011 from the shotgun marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria. The new bank’s shares were sold to the public in May 2013 at an IPO price of €0.40. By April 2014, they were trading above €2, a massive 400% gain.
But by April 2015, the stock had started sinking. By May 2017, it was trading at around €1.20. Then came the collapse of Banco Popular in early June, which took many investors (but not WOLF STREET readers) by surprise, triggering a further crash in Liberbank’s stock as shareholders feared they would be next.
Scenting blood, short sellers began piling in, and just as the stock entered free-fall, the government intervened by imposing a temporary ban on short selling. The stock stabilized and even began to recover. By mid-July it had recrossed the psychological €1-threshold. Rumors began circulating that the short-selling ban would soon be lifted.
But in late August, after reaching €1.07, the stock’s progress began to waiver. At the beginning of this week Liberbank’s shares once again became a penny stock. Someone knew something…
Indeed. On Wednesday evening, the bank announced that it would expand its capital by €500 million, and these brave shareholders would be diluted. The response was to sell: shares plunged over 12% on Thursday and a further 5% on Friday.
The fear is understandable. Spanish investors are still smarting from Santander’s hurried takeover and bail-in of Banco Popular. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers. Speculators were shocked and appalled.
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