By Andrés González and Paul Day
MADRID (Reuters) - A shareholder activist group is studying legal action against state-controlled Bankia <BKIA.MC>, Spain's fourth-biggest bank, which has lost over half its value since a listing last year targeted at individuals.
Implicit government backing of Bankia's initial public offering masked a bad deal for investors, Angel Fernandez-Albor, spokesman for the Spanish Association of Minority Shareholders of Public Companies, AEMEC, said on Tuesday.
When Bankia was unable to drum up demand from institutional investors for its IPO last July, it used a publicity campaign - "The Future Together" - to sell shares to tens of thousands of individuals through its 3,250 branches at 3.75 euros apiece.
Those shares stood at 1.786 euros at 0840 GMT, down 5.3 percent on the day. Other big Spanish banks, such as Santander <SAN.MC>, have lost about 30 percent of their value since last summer.
"This was a government project ... launching this entity on the stock exchange and sending a message to Europe that Spain's banks were solid," said Fernandez-Albor, also a partner at the Cremades Calvo Sotelo law firm that advises AEMEC. "What we are looking at is damage to investors."
AEMEC is studying taking legal action against the Bank of Spain and regulator the National Securities Market Commission (CNMV), as well as the bank's auditors, it told Reuters.
The ministry of economy, responsible for banking reform, would not comment on the threat of a lawsuit, while Bankia was not available to comment. Tuesday is a holiday in Madrid.
Bankia, exposed to Spain's crashed property market, is at the heart of the country's banking problems which, in turn, are at the heart of the euro zone debt crisis due to fears of a costly government bailout of the financial sector.
When a 10-year housing and building bubble burst in 2007-08, Spain's banks found themselves saddled with bad debt and soured property assets that now total 184 billion euros ($236 billion).
Bankia, formed in 2010 from seven weak savings banks to try to save all of them through efficiencies, now holds more than 10 percent of deposits in Spain's banking system and is the most exposed bank of all.
"THE FUTURE TOGETHER"
Fernandez-Albor said the seven-year-old AEMEC, which has drawn attention to minority shareholders interests through a number of lawsuits, has been contacted by numerous Bankia investors interested in legal action.
"I feel deceived and more than a little worried, because I have shares from when Bankia was listed. I believe ... I hope that in the longer term the shares will recover their value and the government's involvement could help calm things down, but for now all we see is nerves and uncertainty," Maria Luisa, 61, a pharmaceutical consultant, told Reuters in Madrid.
The government holds about 48 percent of Bankia after moving to take control takeover last week.
According to Thomson One data, institutional investors own 2-3 percent of Bankia, with most of the rest of the bank's 400,000 investors being individuals.
When Bankia was created it received 4.5 billion euros state money to plug holes from its loans to real estate developers and large holdings of repossessed land and buildings whose values have been plummeting.
Under the banking sector reform then in force, Bankia was forced to raise extra capital to make itself stronger against potential losses. Major foreign investors were not interested in Spanish banks, so Bankia opted for a public offering.
Rodrigo Rato, chief executive at the time and also a former economy minister and ex-head of the International Monetary Fund, attracted few institutional investors and had to sell shares at a steep discount to the bank's reported book value.
It was one of the largest IPOs in Europe last year as many companies ditched plans to launch in a troubled market.
If the government ends up putting billions more euros into Bankia to raise its capital, as expected, shareholders' could end up with their holdings diluted depending on the formula that is used.
Anger at Spanish banks is rising as the government pledges up to 15 billion euros to help the lenders in a fourth wave of reforms to the limping financial sector.
Spain's unemployment rate is 24.4 percent - the highest in the developed world, the economy is in its second recession since 2009, and the government is cutting health and education services.
At the weekend, marches by the "Indignados" (Indignant) movement - protests against the government's handling of the crisis - demonstrators carried signs saying "not one more euro for the banks".
"This company that has spent years living like a vampire off state to escape from the crisis and, like the rest of the sector, has no scruples as it evicts families unable to pay their mortgages and cuts off loans to small companies," Facua, a consumer group said.
($1 = 0.7789 euro)
(Additional reporting by Tomas Cobos; Writing by Fiona Ortiz; Editing by Dan Lalor)