Stock prices of Bankia and Banco de Valencia fell sharply following the Frob's announcement about Bankia. The Frob said that shareholders ought to help pay for the bank's effort to clean up its accounts. In the past few days both stocks have racked up astonishing gains on the news that Spanish government would pump 30 billion euros into nationalized banks before the end of the month. But it?s hard to prove direct causation between news events and rising valuations.
In any case, the fact that Bankia and Banco de Valencia have major liquidity problems justifies the panic. And the Frob is right in stating in its memorandum: a bank bailout won't be free for shareholders, but it will help put an end to speculation.
