Bank Shares Fall as Spain Regulator Lifts Short-Selling Ban
February 16, 2012, 8:51 PM ESTBy Emma Ross-Thomas and Charles Penty
(Closes shares in fifth paragraph.)
Feb. 16 (Bloomberg) -- Spain’s stock-market regulator lifted a six-month ban on short-selling of financial stocks, saying the “extreme volatility” that justified the ban had eased. Banking shares plunged, led by Bankia SA.
Steps taken by the European Union to tighten budget discipline have helped stabilize markets, as have the European Central Bank’s longer-term financing operations and the Spanish government’s overhaul of the banking industry announced on Feb. 2, the regulator said.
“The extreme volatility, continued instability and uncertainty in European markets, particularly financial stocks, that justified temporary restrictions on taking or increasing short positions has eased,” the CNMV regulator said in an e- mailed statement in Madrid.
France, Belgium, Spain and Italy moved to ban short-selling in August in an effort to stabilize markets after European banks hit their lowest levels since the credit crisis of 2008. France and Belgium lifted their bans this week. Spain had left the ban open-ended since Sept. 28.
Shares in banks plunged today following last night’s announcement. Bankia fell as much as 9.8 percent before closing in Madrid down 7.3 percent at 3.09 euros ($4.04). Banco Popular Espanol SA closed down 6.2 percent at 3.26 euros, paring earlier declines of as much as 8.3 percent.
Banco Sabadell SA fell as much as 7.8 percent, Banco Bilbao Vizcaya Argentaria SA as much as 5.4 percent and Banco Santander SA as much as 4.9 percent.
Share Sales
The stocks are correcting in price as investors, now free from the short-selling ban, also adjust prices to reflect the outlook for forthcoming share issues as Spanish banks bolster their balance sheets, said Andrea Filtri, an analyst at Mediobanca SpA in London. The government also announced new rules earlier this month designed to make banks recognize more losses on real estate piled up on their balance sheet during Spain’s property boom.
Bankia’s parent, Banco Financiero y de Ahorros, said Feb. 10 that it would offer to exchange as much as 1.28 billion euros of preferred shares and subordinated debt for Bankia shares in a swap that would be equivalent to as much as 26 percent of the stock in circulation. The Bankia group said the same day that cleaning up real estate would require 5.1 billion euros in provisions and extra capital.
Sabadell is asking investors to increase its shares by about 40 percent as it shores up its balance sheet to absorb Caja de Ahorros del Mediterraneo, a failed savings bank group seized by the Bank of Spain last year. BBVA said in December it would issue 3.43 billion euros of bonds that automatically convert into shares to exchange for preferred shares.
“A clear price correction was needed for Spanish banking shares,” Filtri said in a phone interview.
Short-sellers sell borrowed shares with plans to buy them back later at a lower price. The practice is known as “naked” when sellers haven’t first taken steps to ensure that they can borrow the securities.
Naked short-selling remains banned, according to Spanish law, the CNMV said in the statement. France and Belgium also prohibit the practice.
--With assistance from Jim Silver in New York and Manuel Baigorri in Madrid . Editors: Ben Livesey, Steve Bailey
To contact the reporters on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net; Charles Penty in Madrid at cpenty@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
