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Shares in Spanish bank Banco Popular lost over a fifth of their value Thursday after the bank asked shareholders to stump up more cash to clear up its balance sheet.
In a rights issue worth 2.5 billion euros ($2.8 billion), the bank will create over two billion new shares at 1.25 euros between May 28 and June 11, it said in a regulatory filing. The bank’s stock closed at 2.36 euros on Wednesday.
“With this operation Popular will strengthen its balance sheet and improve its profitability as well as its solvency and the quality of its assets,” the lender said in a statement.
In a rights issue, a company asks existing shareholders to buy new stock, diluting the value of existing shares in the process.
In response, shares in Banco Popular, Spain’s seventh largest bank by market value, fell by 20.25 percent to 1.88 euros in mid-morning trade on the Spanish stock exchange.
Like its Spanish rivals, Banco Popular is dealing with low interest which have hurt margins while it seeks to reduce the burden of failed real estate assets after a decade-long property bubble burst in 2008.
The lender has shifted its focus in recent years to lending to small and medium sized businesses and well as consumers.
The rights issue will allow the lender to boost its capital level-under international regulations known as “fully loaded” Basel III criteria-to more than 10.8 percent by the end of this year, the bank said.