The rise and fall of Spain’s Bankia

Q How did Bankia come about?
A Formed in January 2011 from the merger of seven small regional savings banks (cajas) which had lent aggressively into Spain’s property bubble it became the country’s fourth largest lender overnight, with over 4,000 branches, 25,000 employees and massive exposure to the property bubble.

Q What went wrong?
A It needed to boost the proportion of its top flight, tier one, capital to meet regulatory requirements and a float was the quickest way to do this. With little international appetite for the shares, the bulk was sold to Spanish retail investors, who saw it as a safe investment, raising €3.3bn.

Q What happened next?
A In February, Bankia reported 2011 profits of €309m for 2011, but three months later it reported losses for the same period of €3bn. The government took it over in May, injecting €19bn after it became clear it did not have enough capital to cope with the scale of property losses. This forced Spain itself, whose finances were weakened by the downturn, to ask the European Union for a bailout loan of as much as €100bn to clean up its banks.

a’s shares are now 75 per cent below their float price.