Liberbank forced to raise funds

Liberbank is trying to raise funds, but the deal is complicated because the banks top-quality resources account for 7.3% of its holdings while the average rate for Spanish banks is 10%. This will be a problem for Liberbank when it is time to value its shares and submit to stress tests, which determine how much a bank can afford to lend based on its capital reserves.

To hedge against an unfavorable outcome, the company will structure the deal like the ones Popular and Sabadell carried out as it sells 61% of its capital in an effort to raise 500 million euros. This will dilute shares for current stockholders if they do not take part in the new share issue. The banks that make up Liberbank -- Cajastur, Extremadura and Cantabria -- are also going to shrink their positions. They own 68% of the capital now, and the banks new regulations are penalizing anyone who owns more than 50% of its assets.

So who will buy shares? Foreign funds that see an opportunity to win big on this bet. The deal will not provide Liberbank with more cash as it prepares for ECB stress tests plus increase the company's net asset level in the markets as it tries to return the 124 million euros of public funds that it borrowed. Once Liberbank pays off its debts to taxpayers, it will be able to pay shareholders a dividend, which will attract any investors willing to take the risk.