European authorities are pushing Bankia (BKIA) group to impose losses on junior debtholders as part of Spain's bank bailout by swapping their securities for stock in the nationalised lender.
The European Central Bank and European Commission want investors including preference shareholders to accept newly issued shares in exchange for their existing securities to help reduce the cost to the taxpayer of Spain’s €100 billion ($130 billion) bank rescue, said the people, who declined to be named because the matter isn’t public. Bankia opposes the proposal.
Forcing losses on the investors is politically sensitive because many are retail clients, and Economy Minister Luis de Guindos has said that banks should never have sold preferred shares to individual investors. Under EU rules, junior bondholders must share the burden of rescuing lenders to reduce the cost to taxpayers and the exercise typically involves exchanging the notes for cash or new securities at a discounted value.
De Guindos, who has changed legislation to limit future sales of preference shares to retail clients, has said the government is seeking a solution for the investors. European Union Competition Commissioner Joaquín Almunia said in June that Spain could use budget revenue to compensate them.
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