Bankia is going to exchange preferred stock shares for convertible bonds in order to meet EU capital requirements. Until now it was the only Spanish lender that had still not announced how it was going to come up with the resources to reach the 1.329 billion euro amount that the European Banking Authority (EBA) was demanding.
Bankia president Rodrigo Rato announced yesterday that "we will likely utilize preferred stock" to improve our solvency position. The Bankia head office, Banco Financiero de Ahorros (BFA), has 4.8 billion euros in this product distributed among its clients in 2009 (3.2 billion from Caja Madrid, 1.2 billion from Bancaja and another 400 million from the rest of the savings bank partners).
The deal is happening a week after the Spanish government modified a law that allows savings banks to keep their bank slips even though they are ceding more than fifty percent of the capital belonging to the new lenders born out of recent mergers.
Without this change to the law, Bankia was not able to convert the preferred shares without their founding entities (the seven savings banks that comprise the group) becoming foundations. Through this summer's IPO, the savings banks possess fifty-three percent of Bankia indirectly. According to Rato, "we will raise more capital before June" in order to convert the preferred shares and meet Europe's capital requirements.
After the deals, shareholders with preferred shares will convert them to Bankia shares, but savings banks will not lose their control.