Suspense. Yesterday, banks in Spain were not able to take advantage of the CNMV's decision to lift a ban on short selling financial stocks, which was announced two days ago after markets closed. Pressure from the bears and the impact of Moody's latest report pummeled the Spanish financial sector as it dropped around 5% while the Ibex 35 fell 2.1% to 8,558 points. This marks its sharpest decline since January 5.
Many investors were siting on short positions in financial stocks in order to make the most of dropping share prices and reap the profits. They waited around for six months without being able to sell their short positions. Their pessimism was shared by Moody's and the Spanish government, which raised their estimations for how much capital reserve requirements the banks need to raise in order to be healthy from 50 billion euros to 52 billion euros. What is the result of all this? The Ibex 35 is the only big European index in the red in 2012, and the banks listed on this index, which represent more than 30% of index capitalization, lost 4.945 billion euros in stock value yesterday. In other words, that is 9.5% of the capital that the Spanish government said banks needed in order to clean up their balances.
The market seems to have already corrected itself based on the CNMV's decision to allow short selling. After France and Belgium lifted the ban on short selling last Monday, all indicators suggested that Spain would follow in their footsteps and reinstate short selling as soon as possible in order to return to normal trading conditions.
