THE NATIONAL Securities Market Commission (CNMV), Spain’s stock market regulator imposed a month-long short-selling ban on Liberbank on Monday in an effort to halt the sharp fall in the lender’s share price and what European authorities have described as a potential ‘domino effect’ that could damage the country’s entire banking system.
Shares in Liberbank rallied in response, rising 30 per cent in morning trading.
The measure comes less than a week after Santander acquired fellow Spanish lender Banco Popular in an overnight auction for €1 after the European Central Bank warned that Spain’s No. 6 bank by assets was on the verge of collapse.
The acquisition resulted in heavy losses for shareholders and some bond investors.
That in turn prompted a steep fall in the share price of Liberbank, a much smaller lender but one that carries a significant amount of non-performing assets and that lags behind its peers in terms of provisions and its coverage ratio.
When the CNMV announced the ban, it said it wanted to avoid any loss of confidence in Liberbank and that the regulator was not considering extending the ban to other lenders for now.
The European Securities and Markets Authority (ESMA) also issued a detailed statement that backed the move, explaining the urgent circumstances that led to it.
The CNMV said it had taken this decision after the recent stock price fall of Liberbank in the aftermath of Popular’s rescue.
But it sought to draw a distinction between the two banks. One official said that Liberbank’s situation was different to Popular, whose finances had been stressed.
Banco Popular, which had booked revised losses of €3.6 billion in 2016, was rescued after the ECB said there was a deterioration in its liquidity in the days leading to its rescue.
The CNMV said they had not found any evidence of any liquidity problems at Liberbank.
Liberbank was formed in 2011 from the merger of three regional savings banks and which controls around two percent of all Spanish deposits. Until its recent share price collapse, it was ranked as the eighth-biggest bank in Spain by market value.
Short-selling is the sale of a security that is not owned by the seller, or that the seller has borrowed and motivated by the belief that a security’s price will decline, enabling it to be bought back at a lower price to make a profit.