1. PURPOSE OF THE REPORT

Transcription

1 EXPLANATORY REPORT BY THE BOARD OF DIRECTORS ON POINT 2 ON THE AGENDA OF THE ORDINARY GENERAL MEETING OF SHAREHOLDERS REGARDING THE REDUCTION OF SHARE CAPITAL BY AN AMOUNT OF 6,334,530, EUROS TO INCREASE THE VOLUNTARY RESERVES, BY REDUCING THE PAR VALUE OF ALL SHARES BY 0.55 EUROS TO 0.25 EUROS PER SHARE BASED ON THE BALANCE SHEET CLOSED AT 31 DECEMBER CONSEQUENT AMENDMENT OF ARTICLE 5 OF THE COMPANY BYLAWS. DELEGATION OF AUTHORITY. 1. PURPOSE OF THE REPORT The Board of Directors of Bankia, S.A. (hereinafter, Bankia or the Company ), at its meeting of 22 February 2017, resolved to submit to the General Meeting of Shareholders under point 2 of the Agenda, a proposal regarding reduction of share capital by an amount of 6,334,530, euros to increase the voluntary reserves, by reducing the par value of all shares by 0.55 euros to 0.25 euros per share based on the balance sheet closed at 31 December It was likewise resolved to submit to the General Meeting of Shareholders the consequent amendment of article 5 of the Bylaws and the relevant delegation of authority. Bringing said proposed reduction of share capital before the ordinary general meeting of shareholders of the Company for approval requires, according to articles 286 and of the Consolidated Text of the Spanish Corporations Act approved by Legislative Royal Decree 1/2010 of 2 July 2010 (the Spanish Corporations Act ), inasmuch as the resolution to reduce capital necessarily implies amending article 5 of the Bylaws on the capital figure, the Board of Directors to formulate this report explaining the reasons for the proposed resolution. Furthermore, according to article 287 of the Spanish Corporations Act, the notice of call of the General Meeting must state with due clarity the points that are to amended and the right of all shareholders to examine, at the registered office, the full text of the proposed amendment and the report thereon, as well as to request to be given or sent a copy of the documents free of charge. And lastly, article 10 of Royal Decree 84/2015 of 13 February 2015, implementing Law 10/2014 of 26 June on regulation, supervision and solvency of credit institutions, provides that amendments to bylaws of banks will be subject to the authorisation and registration procedure of article 3 of that Royal Decree. 2. RATIONALE FOR THE PROPOSED REDUCTION OF SHARE CAPITAL In view of the Company's individual balance sheet at 31 December 2016 that was formulated by the Bankia Board of Directors at its meeting of 9 February 2017 and examined by the Company's statutory auditor on 10 February 2017, and the approval of which is submitted to the General Meeting of Shareholders of the Company under point 1 of the Agenda, the Board of Directors proposes to the General Meeting that the share capital be reduced by 6,334,530, euros to 2,879,332, euros, by reducing the par value of each and every outstanding share of the Company by 0.55 euros, in accordance with article of the Spanish Corporations Act. 1

2 The purpose of the reduction of capital proposed is to increase the voluntary reserves of the Company. Consequently, the amount of the capital reduction will be allocated to increase Voluntary Reserves by 6,334,530, euros. With the execution of this reduction of capital, if it is approved, Bankia's equity structure will be at comparable parameters to the rest of Spain's largest credit institutions. In accordance with articles 334 and 336 of the Spanish Corporations Act, Company creditors whose credits originated prior to the date of the last announcement of the capital reduction resolution and have not yet matured at that date will enjoy the right to oppose the proposed capital reduction until those credit rights are secured. In addition, the resolution will be submitted, in accordance to article 411 of the Spanish Corporations Act, to the consent of the syndicates of debentureholders formed in relation to the Company's debt issues. The time limit for the reduction is set at a maximum of 4 months reckoned from the date of fulfilment of the condition precedent to which it is subject, for having these resolutions notarised and for filing the related public deed with the Mercantile Register of Valencia for registration therein. In any event, this resolution will be executed after the dividend payment approved in this same General Meeting in relation to the allocation of results for It is also noted that if the reduction of capital referred to by this report is approved, the figures for the Company's legal reserve and voluntary reserves would be revised accordingly. The Company's legal reserve of 1,087,338, euros (assuming approval of the allocation of results submitted to the general meeting under point 1.4 of the Agenda), represents 38% of the share capital resulting from this reduction of capital. Consequently, once the resolution has been carried into effect, if such is the case, the excess legal reserve over the equivalent of 20% of the share capital resulting after this reduction will be taken to unrestricted reserves. The Company's legal reserve will thus be reduced by 511,471, euros to 575,866, euros, the equivalent of 20% of the share capital resulting from this reduction of capital. It is likewise proposed that article 5 of the current Bylaws be amended to reflect the new share capital figure and the new par value of the shares representing that capital. Lastly, it is proposed that the Board of Directors be authorised, with express power to subdelegate this authority, to carry out all such acts and execute all such documents as may be necessary to implement the resolution referred to by this report. A condition precedent for the effectiveness of this resolution to reduce capital will be the attainment of such regulatory and other authorisations as may be necessary, in particular, if mandatory, the authorisation from the European Central Bank for this capital reduction. 3. FULL TEXT OF THE PROPOSAL Proposed resolution submitted to the General Meeting under point two of the Agenda Reduction of capital to adapt the Company's equity structure. 2

3 Reduction of share capital by an amount of 6,334,530, euros to increase the voluntary reserves, by reducing the par value of all shares by 0.55 euros to 0.25 euros per share based on the balance sheet closed at 31 December Consequent amendment of article 5 of the Company Bylaws. Delegation of authority. The General Meeting of Shareholders of Bankia resolves to reduce capital in order to increase the voluntary reserves of the Company, all in accordance with the terms and conditions set out below. For the purposes provided for in this resolution, all words beginning in uppercase that are not expressly defined herein will have the same meaning as ascribed to them in the directors' report supporting this proposed resolution. I. Reduction of capital It is resolved to reduce the Company's share capital, currently fixed at 9,213,862, euros, by 6,334,530, euros, so as to fix it at 2,879,332, euros. The purpose of the reduction is to increase the voluntary reserves of the Company. The reduction of capital is effected by reducing the par value of all outstanding shares of the Company by 0.55 euros, that is, from 0.80 euros per share to 0.25 euros per share. The total reduction of share capital is 6,334,530, euros. The capital reduction affects all shares equally, with no difference of treatment between them. As a consequence of the reduction of capital, unrestricted voluntary reserves are increased by 6,334,530, euros. In accordance with articles 334 and 336 of the Spanish Corporations Act, Company creditors whose credits originated prior to the date of the last announcement of the capital reduction resolution and have not yet matured at that date will enjoy the right to oppose the proposed capital reduction until those credit rights are secured. For the purposes provided for in el article 323 of the Spanish Corporations Act, it is placed on record that the Company balance sheet that serves as basis for the adoption of this resolution is the one contained in the financial statements closed at 31 December 2016, examined by the Company's statutory auditor, Ernst & Young, S.L., and which is approved by the General Meeting under the first point section 1.1 of the Agenda. The time limit for the reduction is set at a maximum of 4 months reckoned from the date of fulfilment of the condition precedent to which it is subject, for having these resolutions notarised and for filing the related public deed with the Mercantile Register of Valencia for registration therein. In any event, this resolution will be executed after the dividend payment approved in this same General Meeting in relation to the allocation of profits for II. Revision of the legal reserve and voluntary reserves The Company's legal reserve of 1,087,338, euros (assuming approval of the allocation of results submitted to the general meeting under point [1.4] of the Agenda), represents 38% of the 3

4 share capital resulting from this reduction of capital. Consequently, it is placed on record for these purposes that once this resolution has been carried into effect, if such is the case, the excess legal reserve over the equivalent of 20% of the share capital resulting after this reduction will be taken to unrestricted reserves. The Company's legal reserve will thus be reduced by 511,471, euros to 575,866, euros, the equivalent of 20% of the share capital resulting from this reduction of capital. III. Amendment of article 5 on the share capital Amend article 5 of the Bylaws henceforth to read as follows: Article 5.- SHARE CAPITAL. 1. The share capital is fixed at two thousand eight hundred seventy-nine million three hundred thirty-two thousand one hundred thirty-six euros ( 2,879,332,136.00). 2. It is represented by a single series and class and a total number of eleven thousand five hundred seventeen million three hundred twenty-eight thousand five hundred forty-four (11,517,328,544) shares. 3. The shares will have a par value of twenty-five euro cents ( 0.25) each. 4. The shares representing the capital social are fully subscribed and paid up. IV. Delegation of authority It is resolved to authorise the Board of Directors, as broadly as required in law and with express powers to subdelegate this authority to the Chairman, to the Chief Executive Officer, to one or more directors, to the Secretary and to the Assistant Secretary so that any one of them indistinctly may execute this resolution, with capacity, in particular, by way of example and without limitation, to: (i) (ii) (iii) Expand and develop this resolution, specifying the terms and conditions of the reduction insofar as concerns all questions not provided for therein. Carry out all necessary acts to comply with the requirements of the Spanish Corporations Act, the Consolidated Text of the Stock Market Law, Royal Decree 878/2015 of 2 October 2015 on clearing, settlement and registration of negotiable securities represented as book entries, on the legal regulation of central depositaries of central counterparties and on transparency requirements for issuers of securities admitted to trading in an official secondary market, including publication of the relevant required notices and the rest of the applicable rules, including publication of the relevant required notices. Carry out the acts and formalities needed to obtain the consents and authorisations that are required for the full effectiveness of this resolution, including, if applicable, the 4

5 consent of the syndicates of holders of the Companies debentures in accordance with article 411 of the Spanish Corporations Act. (iv) (v) (vi) (vii) (viii) (ix) Carry out on behalf of the Company any action, statement or formality that is required before the Comisión Nacional del Mercado de Valores ( CNMV ), Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (IBERCLEAR), the Governing Corporations of the Stock Markets, the securities settlement and clearing service (Servicio de Liquidación y Compensación de Valores) and any other public or private body or entity or registry, in or out of Spain, in relation to the reduction of capital referred to by this resolution and, in particular, so that, with effect as from the first trading session determined by the latter, upon prior execution of the deed of reduction of capital and its registration in the Mercantile Register, the current 11,517,328,544 shares of BANKIA, S.A. with a par value of 0.80 euros each be technically excluded from trading, with simultaneous admission to trading of the same number of shares with a par value of 0.25 euros each on the Madrid, Barcelona, Bilbao and Valencia Stock Exchanges, through the Spanish Stock Market Interconnection System (Sistema de Interconexión Bursátil). Amend the Bylaws article on the share capital to reflect the new capital figure. Draft and publish all such announcements as may be necessary or convenient in relation to this reduction of share capital. Execute on behalf of the Company all such public or private documents as may be necessary or convenient for the reduction of capital and, in general, carry out all requisite formalities for the best execution of this resolution and the effective reduction of capital. Correct defects in, clarify, interpret, specify or supplement the resolutions adopted by the General Meeting of Shareholders, or the deeds or documents executed to implement those resolutions, and, in particular, all such defects, omissions or errors, substantive or formal, as may impede entry of the resolutions and their consequences in the Mercantile Register, the Official Registers of the CNMV or any others. In general, perform all acts that are necessary or convenient for the successful completion of the reduction of capital. V. Condition precedent A condition precedent for the effectiveness of this resolution to reduce capital is that there be obtained such regulatory and other authorisations as may be necessary, in particular, if mandatory, the authorisation from the European Central Bank for this capital reduction. Madrid, 22 February

6 EXPLANATORY REPORT BY THE BOARD OF DIRECTORS ON POINT 3 ON THE AGENDA OF THE ORDINARY GENERAL MEETING OF SHAREHOLDERS REGARDING THE PROPOSAL FOR A REVERSE SPLIT TO REDUCE THE NUMBER OF OUTSTANDING SHARES BY FOUR, THAT IS, IN THE PROPORTION OF ONE NEW SHARE FOR EVERY FOUR PREEXISTING SHARES OF THE COMPANY. CONSEQUENT AMENDMENT OF ARTICLE 5 OF THE COMPANY BYLAWS. DELEGATION OF AUTHORITY. 1. PURPOSE OF THE REPORT The Board of Directors of Bankia, S.A. (hereinafter, Bankia or the Company ), at its meeting of 22 February 2017, resolved to submit to the General Meeting of Shareholders under point 3 of the Agenda, a proposal for a reverse split to reduce the number of outstanding shares by four, that is, in the proportion of one new share for every four preexisting shares of the Company. It was likewise resolved to submit to the General Meeting of Shareholders the consequent amendment of article 5 of the Bylaws and the relevant delegation of authority. Bringing said proposed reverse share split before the Ordinary General Meeting of Shareholders of the Company for approval requires, according to articles 286 of the Consolidated Text of the Spanish Corporations Act approved by Legislative Royal Decree 1/2010 of 2 July 2010 (the Spanish Corporations Act ), inasmuch as the reverse split resolution necessarily implies amending article 5 of the Bylaws on the capital figure, the Board of Directors to formulate this report explaining the reasons for the proposed resolution. Furthermore, according to article 287 of the Spanish Corporations Act, the notice of call of the General Meeting must state with due clarity the points that are to amended and the right of all shareholders to examine, at the registered office, the full text of the proposed amendment and the report thereon, as well as to request to be given or sent a copy of the documents free of charge. And lastly, article 10 of Royal Decree 84/2015 of 13 February 2015, implementing Law 10/2014 of 26 June on regulation, supervision and solvency of credit institutions, provides that amendments to bylaws of banks will be subject to the authorisation and registration procedure of article 3 of that Royal Decree. 2. RATIONALE FOR THE PROPOSAL As a result of the reduction of capital proposed to the General Meeting under point 2 of the Agenda, if it is approved and carried into effect, the share capital will be fixed at 2,879,332, euros, represented by 11,517,328,544 shares with a par value of 0.25 euros each. The proposed reverse split will allow (i) the total number of Company shares to be reduced; (ii) the trading price of the Company shares to be set more appropriately; (iii) the share's volatility in the market to be limited, without loss of liquidity; and (iv) the Company share price to be placed at levels in line with its comparable companies. The currently quoted price of the Company's shares can provoke brusque movements in the trading price because a minimal change in unit terms represents a large percentage variation. This circumstance could be avoided by the reverse share split. 1

7 In conclusion, the operation referred to by this report aims to adjust the trading price of the Company's shares so that it is not conditioned by the above factors, in order to favour better formation of that trading price in accordance with the circumstances of the market and of the Company itself. The reverse split submitted to the General Meeting for approval under this point of the Agenda would neither increase nor decrease capital, and would only affect the number of shares into which that capital is divided, without prejudice to the terms of point 2 of the Agenda. In this regard, shareholders who own a number of shares that is not a multiple of four will have the choice of: (i) (ii) Purchasing or selling the needed number of shares to bring the number of shares they hold to a multiple of the swap ratio; or Pooling their shares with other shareholders to attain a number of shares that is a multiple of the swap ratio. In addition, according to articles 26.1.b) and 41.1 a) of Royal Decree 1310/2005 of 4 November 2005, partly implementing the Stock Market Law on matters of admission of securities to trading in official secondary markets, public sale or subscription offerings and the prospectus required for such purpose, the obligation to publish a public offering prospectus does not apply, because the new shares are issued in place of already issued shares of the same class, without implying an increase in the issued capital. If, at the close of the trading day preceding the day on which the share swap is to be effected as described above, any shareholder still holds a number of shares that is not a multiple of four, the excess shares will be acquired by the Company. The price of acquisition will be the closing price at the end of trading that day, and the sale will not generate any cost for the holders of those surplus shares, other than the expenses and brokerage charges that may be passed on to them by their respective custodians. The amount payable for purchase of those excess shares will be paid by the Company to the Iberclear affiliated entities for payment into the accounts of the shareholders who have their shares of the Company deposited in said entities. That payment will take place between the effective date of the swap and the second business day thereafter. The Board of Directors may, if it deems necessary, appoint an agent and give it a mandate to acquire the surplus shares in the name of the Company. It is likewise proposed that the Board be authorised, with express power to subdelegate this authority to the Chairman, to the Chief Executive Officer, to one or more directors and to the Secretary, inter alia, the authority to execute the proposed resolution, and to carry out all acts that are necessary for complying with the requirements laid down in the applicable laws; to apply to have the newly issued shares admitted for trading on the Madrid, Barcelona, Bilbao and Valencia Stock Exchanges through the Spanish Stock Market Interconnection System (Sistema de Interconexión Bursátil), and on the rest of the stock exchanges on which the shares are traded and for their registration with Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (Iberclear), and the simultaneous delisting of the old shares that are cancelled; to carry out all necessary actions before the Bank of Spain and the European Central Bank and to 2

8 declare the reverse split to have been executed and, consequently, article 5 of the Bylaws amended accordingly, with express power to subdelegate this authority. With the proposed reverse split, and assuming that the reduction of capital that will be submitted to the General Meeting under point second of the Agenda is approved and executed on the terms proposed by the Board of Directors, the resulting share capital would be 2,879,332, euros, divided into 2,879,332,136 shares with a par value of 1.00 euro each, represented by book entries. 3. JUSTIFICATION OF THE SWAP RATIO The swap ratio of the old shares to the new ones (four old shares for each new share) means the newly issued shares will have a par value of 1.00 euro. That share exchange ratio has been fixed for the purpose of attaining a par value for the new share that allows, on the one hand, achievement of the purposes of the operation, as described above, without, on the other, the new par value affecting the share liquidity which retail investors may seek. In addition, as mentioned in section 2 above, this new par value will allow better comparability between the value of the share and that of other comparable entities. The share swap will take effect on the date determined by the Board of Directors after the reverse split and consequent bylaws amendment have been entered in the Company's registry page. The swap will be executed as from the date indicated in the notices to be published in the Mercantile Register Official Gazette (Boletín Oficial del Registro Mercantil), in a daily newspaper with nationwide circulation, on the Company's website and, if mandatory, in the Quotation Bulletins of the Spanish Stock Exchanges. Furthermore, that date will be communicated by submission of the relevant material disclosure (hecho relevante). 4. FULL TEXT OF THE PROPOSAL Proposed resolution submitted to the General Meeting under point three of the Agenda REVERSE SPLIT TO REDUCE THE NUMBER OF OUTSTANDING SHARES BY FOUR, THAT IS, IN THE PROPORTION OF ONE NEW SHARE FOR EVERY FOUR PREEXISTING SHARES OF THE COMPANY. CONSEQUENT AMENDMENT OF ARTICLE 5 OF THE COMPANY BYLAWS. DELEGATION OF AUTHORITY. To reduce the number of outstanding shares of the Company by combining every four shares with a par value of 0.25 per the value resulting from the reduction of capital submitted to the General Meeting under point two of the Agenda into one new share with a par value of The number of shares after the reverse split will be 2,879,332,136 shares, with no change to the Company's share capital figure. The new shares issued and placed in circulation will be ordinary shares, represented by book entries, and their related recordkeeping will be done by Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A.U. (Iberclear) and its participating entities. The new shares will be of the same series and class and carry the same financial and political rights as the current shares, in proportion to their par value. 3

9 According to articles 26.1.b) and 41.1 a) of Royal Decree 1310/2005 of 4 November 2005, partly implementing the Stock Market Law on matters of admission of securities to trading in official secondary markets, public sale or subscription offerings and the prospectus required for such purpose, the obligation to publish a public offering prospectus does not apply, because the new shares are issued in place of already issued shares of the same class and the issue does not imply an increase in the issued capital. I. Swap procedure and effective dates The share swap will take effect on the date determined by the Board of Directors after the reverse split and consequent bylaws amendment have been entered in the Company's registry page. The swap will be executed as from the date indicated in the notices to be published in the Mercantile Register Official Gazette (Boletín Oficial del Registro Mercantil) and on the Company's website and, if mandatory, in a daily newspaper with nationwide circulation and in the Quotation Bulletins of the Spanish Stock Exchanges. Furthermore, that date will be communicated by submission of the relevant material disclosure (hecho relevante). Shareholders with rightful standing as such according to the accounting records of Iberclear and its affiliated participants at the close of the stock market trading day preceding the effective date determined by the Board of Directors will be entitled to receive one new share for every four old shares the hold. That swap will be done automatically. The share swap will be executed in accordance with the procedures laid down for book-entry securities, through the relevant affiliated participants, per the instructions given for such purpose by Iberclear and by the entity acting as agent, if such agent has been designated. II. Treatment of fractions Shareholders who, after the reverse split swap ratio has been applied, hold a number of shares that is not a multiple of four will have the choice of: (i) (ii) Purchasing or selling the needed number of shares to bring the number of shares they hold to a multiple of the swap ratio; or Pooling their shares with other shareholders to attain a number of shares that is a multiple of the swap ratio. If, at the close of the trading day preceding the day on which the share swap is to be effected as described above, any shareholder still holds a number of shares that is not a multiple of four, the excess shares will be acquired by the Company. The price of acquisition will be the closing price at the end of trading that day, and the sale will not generate any cost for the holders of those surplus shares, other than the expenses and brokerage charges that may be passed on to them by their respective custodians. The amount payable for purchase of those surplus shares will be paid by the Company to the Iberclear affiliated entities for payment into the accounts of the shareholders who have their shares of the Company deposited in said entities. That payment will take place between the effective date 4

10 of the swap and the second business day thereafter. The Board of Directors may, if it deems necessary, appoint an agent and give it a mandate to acquire the surplus shares in the name of the Company. III. Application for admission to trading It is resolved that, once there has been registered in the Mercantile Register of Valencia the public deed formalising the reverse split of outstanding shares and swap for the newly issued shares with modification of the par value of the shares, a request be submitted for simultaneous delisting of the old shares and admission to trading of the new shares on the Madrid, Barcelona, Bilbao and Valencia Stock Exchanges on which the shares are quoted, through the Interconnected Stock Market System (Sistema de Interconexión Bursátil Mercado Continuo), and on the rest of the stock exchanges on which the share is traded, if applicable, and that the necessary formalities and actions be carried out and the requisite documents be filed with the competent bodies for the admission to trading of the new shares issued pursuant to the resolution adopted, making express record of the Company's submission to the present and future rules on securities exchange and, especially, on trading, continued listing and delisting. It is expressly placed on record that, if a subsequent decision is made to request delisting of the Company's shares, it will be adopted with the same formalities that apply and, in such event, the interests of the shareholders who oppose or do not vote on the delisting resolution will be guaranteed, complying with the requirements of the Spanish Corporations Act and related provisions, all according to what is provided in the Consolidated Text of the Stock Market Law approved by Legislative Royal Decree 4/2015 of 23 October 2015, and its implementing provisions in force from time to time. IV. Amendment of article 5 of the Company Bylaws. With the execution of the reverse split, article 5 of the Bylaws on share capital will be amended. The amended article 5 will read as follows: ARTICLE 5. SHARE CAPITAL 1. The share capital is fixed at two thousand eight hundred seventy-nine million three hundred thirtytwo thousand one hundred thirty-six euros ( 2,879,332, ). 2. It is represented by a single series and class and a total number of two thousand eight hundred seventy-nine million three hundred thirty-two thousand one hundred thirty-six (2,879,332,136) shares. 3. The shares will have a par value of one euro ( 1.00) each. 4. The shares representing the capital social are fully subscribed and paid up. V. Delegation of powers to the Board of Directors It is resolved to grant the Board of Directors the authority, as broadly as legally appropriate, and with power to delegate this authority to the Chairman, to the Chief Executive Officer, to one or more 5

11 directors and to the Secretary, to execute the reverse split, including without limitation, the following powers: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) The authority to execute the reverse split resolution. The date of the swap will be timely communicated by means of a notice in the Mercantile Register Official Gazette (Boletín Oficial del Registro Mercantil) and on the Company's website and, if mandatory, in a daily newspaper with nationwide circulation and in the Quotation Bulletins of the Spanish Stock Exchanges. Furthermore, that date will be communicated by submission of the relevant material disclosure (hecho relevante). The authority to prepare, notify and manage any document, publication or certification required in relation to the reverse split process. The authority to fix the exact number of new shares after the reverse split has been executed, if applicable, and to determine the effective date of the reverse split and declare it to have been executed. The authority to reword article 5 of the Company's Bylaws on share capital to reflect the result of the execution of the reverse split. The authority to carry out all necessary formalities to have the new shares entered in the accounting records of Iberclear according to the legally stipulated procedures. The authority to arrange, at the time it deems appropriate, the application and processing with the CNMV, the Governing Corporations of the Madrid, Barcelona, Valencia and Bilbao Stock Exchanges, Sociedad de Bolsas, Iberclear and any other public or private body, entity or registry in or out of Spain, for the admission to trading of all shares comprised by the Company's share capital in the Madrid, Barcelona, Valencia and Bilbao Stock Exchanges, as well as for their trading through the Interconnected Stock Market System Continuous Market (Sistema de Interconexión Bursátil Mercado Continuo) and simultaneous delisting of the old shares that are being cancelled, as well as all formalities, actions, statements or arrangements that are needed or convenient for the purposes, inter alia, of obtaining authorisation, verification and admission to trading of the shares, and to prepare and publish all such notices as may be necessary or convenient for that purpose. The authority to carry out the requisite or convenient formalities before the Bank of Spain, the European Central Bank or any other competent public or private entity, body, authority or registry in or out of Spain. The authority to carry out all such actions as may be necessary or convenient to execute and formalise the reverse split before any public or private entities and bodies in or out of Spain, including authority to submit declarations, supplements or corrections of defects or omissions that could hinder or block the full effectiveness of the above resolutions. The authority to determine, if applicable, the entities that are to participate in the coordinated operation (in particular, appointment of an agent and grant thereto of a mandate on the terms set out above) and, in general, all the guidelines that are to govern the process. 6

12 (x) (xi) (xii) VI. The authority to draft and sign the covenants, agreements, contracts and any other type of document, on the terms they deem appropriate, with any entity that is involved in the operation in any way. The authority to grant all public and private documents that are convenient for the full or partial execution of the reverse split and authority to carry out all appropriate acts in relation to the foregoing resolutions in order to have them entered in the Mercantile Register and in any other registers, including, in particular, amongst other powers, to appear before notary public to execute the public deeds and notarial certificates that are necessary or convenient for said purpose, to correct, rectify, ratify, interpret or supplement the content of the resolutions and execute any other public or private document that is required or convenient until full registration is achieved of the resolutions adopted by the General Meeting, without the need for a new resolution. And, in general, the authority to carry out all such acts and sign all such public or private documents as may be necessary or convenient in the judgment of the Board of Directors, the Chairman and Chief Executive Officer, or of such person as may have been authorised thereby, where such is the case, for the full effectiveness and implementation of the foregoing resolutions. Condition precedent A condition precedent for the effectiveness of this reverse split resolution is that there be approved the resolution to reduce the par value of the shares by 0.55 euros per share from the previous par value and that there be obtained such regulatory and authorisations as may be necessary. 7

13 EXPLANATORY REPORT BY THE BOARD OF DIRECTORS ON POINT 6 ON THE AGENDA OF THE ORDINARY GENERAL MEETING OF SHAREHOLDERS REGARDING THE DELEGATION TO THE BOARD OF DIRECTORS OF THE AUTHORITY TO INCREASE THE SHARE CAPITAL BY UP TO A MAXIMUM OF 50% OF THE SUBSCRIBED SHARE CAPITAL, BY MEANS OF ONE OR MORE INCREASES AND AT ANY TIME WITHIN A MAXIMUM OF FIVE YEARS, BY MEANS OF CASH CONTRIBUTIONS, WITH AUTHORITY, IF APPLICABLE, TO DISAPPLY PREFERENTIAL SUBSCRIPTION RIGHTS UP TO A MAXIMUM OF 20% OF SHARE CAPITAL, ANNULLING THE DELEGATION OF AUTHORITY CONFERRED AT THE PREVIOUS GENERAL MEETING. 1. PURPOSE OF THE REPORT The Board of Directors of Bankia, S.A. (hereinafter, Bankia or the Company ), at its meeting of 22 February 2017, resolved to submit to the General Meeting of Shareholders under point 6 of the Agenda a proposal regarding the delegation to the Board of Directors of the authority to increase the share capital by up to a maximum of 50% of the subscribed share capital, with authority, if applicable, to disapply preferential subscription rights up to a maximum of 20% of share capital, in accordance with the provisions of article 506 of the Consolidated Text of the Spanish Corporations Act, approved by Legislative Royal Decree 1/2010 of 2 July 2010 (the Spanish Corporations Act ). Accordingly, in compliance with articles 286, b) and 506 of the Spanish Corporations Act, the Board of Directors of Bankia issues this report, for the purpose of explaining the reasons for the above proposal, insofar as article b) of said Corporations Act allows the General Meeting of Shareholders of a public limited company, subject to compliance with the requirements of said Act in relation to bylaw amendments, to grant its Board of Directors authority to increase share capital by means of cash contributions, in one or more increases within a maximum of five (5) years, by such amount as the Board may decide, without prior consultation of the General Meeting, up to a maximum of 50% of the subscribed share capital at the time the authority is granted. 2. RATIONALE FOR THE DELEGATION OF AUTHORITY TO THE BOARD OF DIRECTORS TO INCREASE THE COMPANY S CAPITAL The members of the Board of Directors of Bankia consider that the authority to be granted to the Board under the proposal brought before the General Meeting of Shareholders for approval, or otherwise, will afford greater agility in carrying out any capital increases that may be required, always in the Company s interest, in the normal course of the Company s activities, insofar as it will avoid the costs and time involved in calling and holding General Meetings that would be required otherwise, especially given that the required amount of any capital increase cannot be foreseen sufficiently in advance and this authority allows a swifter response in meeting potential capital needs. Such agility is all the more important in view of the demands that may arise from market conditions and circumstances at any given time and also in view of the proposed resolutions that will be submitted, together with the resolution that is the subject of this report, for approval by Bankia s shareholders, insofar as these resolutions envisage the issuance by the Company of bonds and other securities convertible into shares of the Company. 1

14 Given the situation just described, it is in the Company s best interest that its Board of Directors have the greatest possible flexibility to meet the Company s needs, in a manner consistent with the customary practice of a majority of listed banks. It is for this reason that the Board of Directors proposes that the Ordinary General Meeting of Shareholders grant authority to the Board of Directors to increase share capital by means of one or more increases, in the amounts, at the dates, on the terms and in such other circumstances as the Board considers appropriate up to half of the share capital existing at the date of the delegation and for a period of five years, as provided in the Act, and to take whatever steps are necessary to ensure that the new shares issued in the increase or increases are admitted to trading on national and foreign stock exchanges, in accordance with the procedures that apply in each exchange. This resolution will be understood to refer, if applicable to the share capital resulting from the reduction of capital under point 2 of the Agenda, insofar as this resolution is not altered by the reverse split provided for in point 3 below. For all pertinent purposes and for the reasons stated previously, it is necessary that the Board of Directors also be granted authority to disapply preferential subscription rights in relation to the abovementioned capital increases, in accordance with article 506 of the Spanish Corporations Act, as the Company is a listed entity. However, said authority to disapply preferential subscription rights is limited to a maximum aggregate nominal amount equal to 20% of the share capital. As the abovementioned article imposes an obligation to issue a report giving reasons for the disapplication of preferential subscription rights, the Board of Directors considers that, in the interest of the greater flexibility and agility cited earlier as key to achieving the Company s best interest, it is necessary that the Board be granted authority to fully or partly disapply the preferential subscription rights of the shareholders of the Company when the Company s interest so requires, on the terms of articles 308, 505 and other related articles of the Spanish Corporations Act. Thus, in compliance with article 506 of the Spanish Corporations Act, where preferential subscription rights are disapplied in respect of a capital increase carried out by the Board of Directors under the authority granted pursuant to this proposal, always up to a maximum aggregate nominal amount of 20% of the share capital understood likewise to refer, if applicable to the share capital resulting from the reduction of capital under point 2 of the Agenda, insofar as this resolution is not altered by the reverse split provided for in point 3 below the Board of Directors shall prepare a report giving reasons for its decision, which shall be accompanied by an independent report issued by an independent expert other than the auditor of the Company s accounts and appointed for this purpose by the Mercantile Register. These reports will be made available to the shareholders and communicated to the first General Meeting held after the resolution to increase capital is adopted. The Board of Directors believes there are several reasons that justify the authorisation to disapply preferential subscription rights as a complement to the authorisation to increase the share capital. First, disapplication of preferential subscription rights usually allows the costs associated with the operation to be reduced (including, in particular, the commissions charged by the financial institutions taking part in the issue) when compared to offerings with preferential subscription rights. Second, the authorisation to disapply preferential subscription rights allows the directors to speed up the process notably and provide the quick response that today's financial markets tend to demand, allowing the Company to take advantage of the moments when the market conditions are most favourable. Furthermore, disapplying preferential subscription rights can allow the Company to optimise the financial terms of the operation and, in particular, the issue price of the new shares, by more precisely adjusting it to 2

15 the expectations of the qualified investors to whom these capital increases are normally addressed, while diminishing the execution risks by narrowing the transaction's exposure to changes in market conditions. Lastly, disapplication of preferential subscription rights mitigates the trading distortions that can affect the Company's shares during the offering period, which is normally shorter than for an offering with preferential subscription rights. Lastly, for the record, it is noted that the authority granted to the Board of Directors under the proposed resolution that is the subject of this report will supersede and replace the authority granted by the General Meeting of Shareholders of the Company on 15 March Madrid, 22 February

16 EXPLANATORY REPORT BY THE BOARD OF DIRECTORS ON POINT 7 ON THE AGENDA OF THE ORDINARY GENERAL MEETING OF SHAREHOLDERS REGARDING THE DELEGATION TO THE BOARD OF DIRECTORS OF THE AUTHORITY TO ISSUE, WITHIN A MAXIMUM TERM OF FIVE YEARS, SECURITIES CONVERTIBLE INTO AND/OR EXCHANGEABLE FOR SHARES OF THE COMPANY, AS WELL AS WARRANTS OR OTHER SIMILAR SECURITIES THAT MAY DIRECTLY OR INDIRECTLY ENTITLE THE HOLDER TO SUBSCRIBE FOR OR ACQUIRE SHARES OF THE COMPANY, FOR AN AGGREGATE AMOUNT OF UP TO ONE BILLION FIVE HUNDRED MILLION (1,500,000,000) EUROS; AS WELL AS THE AUTHORITY TO INCREASE THE SHARE CAPITAL IN THE REQUISITE AMOUNT, AND THE AUTHORITY, IF APPLICABLE, TO DISAPPLY PREFERENTIAL SUBSCRIPTION RIGHTS UP TO A MAXIMUM OF 20% OF SHARE CAPITAL, ANNULLING THE DELEGATION OF AUTHORITY CONFERRED AT THE PREVIOUS GENERAL MEETING. 1. PURPOSE OF THE REPORT The Board of Directors of Bankia, S.A. (hereinafter, BANKIA or the Company ), at its meeting of 22 February 2017, resolved to submit to the General Meeting of Shareholders under point 7 of the Agenda a proposal regarding (i) the delegation to the Board of Directors of the authority to issue securities convertible into and/or exchangeable for shares of the Company, as well as warrants or other similar securities that may directly or indirectly entitle the holder to subscribe for or acquire shares of the Company, for an aggregate amount of up to one billion five hundred million (1,500,000,000) euros; (ii) the delegation to the Board of Directors of the necessary authority to increase share capital in the amount need for the above purpose; and (iii) the delegation to the Board of Directors of the authority, if applicable, to disapply preferential subscription rights up to a maximum of 20% of share capital. Accordingly, in compliance with articles 286, 297, 417 and 511 of the Consolidated Text of the Spanish Corporations Act approved by Legislative Royal Decree 1/2010 of 2 July 2010 (the Spanish Corporations Act ), the Board of Directors of BANKIA issues this report for the purpose of explaining the reasons for the above proposal that will be brought before the General Meeting for approval, or otherwise. 2. RATIONALE FOR THE DELEGATION OF AUTHORITY TO THE BOARD OF DIRECTORS TO INCREASE THE COMPANY S CAPITAL In the current global market situation and the present state of the financial sector in Spain, any company, especially one that is publicly traded, needs to be able to make whatever decisions are appropriate or necessary in its particular circumstances in the shortest time possible, while also reducing the costs of those actions. Issuing debentures that can be converted into and/or exchanged for shares is one of the instruments used by businesses to raise debt capital. These securities have the advantage of offering investors the opportunity to transform their loans to a company into shares of the latter, and thus obtain a potentially higher return than offered by other debt instruments, while allowing the company to increase its capital. These features mean that the coupon on convertible and/or exchangeable bonds is usually lower than the cost of straight bonds and of bank debt, as the return on the bonds factors in the value of the option they give investors to convert them into shares of the company. 1

17 As the Board of Directors is the most immediate decision-making body and is responsible for the management and representation of the Company, it needs the flexibility to take whatever measures are appropriate at any given time, as is usual practice in the majority of listed banks, without having to call a General Meeting, considering that, given the legal requirements, calling and holding a General Meeting would entail delay in taking such measures, as well as costs, which could significantly harm the Company s interests. It is for this reason that the proposal to delegate authority to the Board of Directors to issue securities convertible into or exchangeable for shares of the Company in an amount of not more than one billion five hundred million (1,500,000,000) euros (or the equivalent thereof in another currency) is considered justified. For purposes of calculation of the aforesaid maximum, in the case of warrants the sum of premiums and exercise prices of the warrants of the issues resolved under this delegation will be taken into account. Said amount is judged sufficient to allow the Board of Directors to raise the necessary debt capital, within a maximum period of five years, by issuing securities convertible into or exchangeable for shares of the Company, or other analogous securities that may directly or indirectly give the holder the right to subscribe for or acquire shares of the Company, to meet the Company s needs at any time, while also optimising the Company s capital structure and, where applicable, comply with the new capital adequacy and capital requirements under recent legal reforms. The Board will have authority, within the margins specified by the General Meeting and always in compliance with applicable laws and regulations regarding this type of issue, to determine the specific terms and conditions of each issue of securities of this type, so that the issues are appropriate to the real circumstances of the Company and the market at any given time, always seeking the Company s best interest. For these purposes, any warrants or other similar securities will be subject to the provisions of the Spanish Corporations Act regarding bonds that are convertible into shares, insofar as they are compatible with the nature of such securities, and specifically to the provisions of article 415 of said law regarding the prohibition of the conversion of such securities into shares of the issuer when the par value of the securities is lower than the par value of the shares. The proposal that is the subject of this report also envisages the delegation of authority to the Board of Directors to adopt and execute resolutions to increase share capital, as provided by article b) of the Spanish Corporations Act. This grant of authority is justified by the abovementioned need for agility in the adoption of resolutions to issue convertible securities and, where applicable, convert them into shares of the Company, all of the foregoing without prejudice to the reports to be issued in respect of each issue by the Board of Directors and an independent expert other than the Company s auditor and appointed for that purpose by the Commercial Registry, as provided in articles 414 and 511 of the Spanish Corporations Act. The proposal also envisages the delegation of authority to disapply preferential subscription rights up to a maximum aggregate nominal amount of 20% of the share capital understood to refer, if applicable to the share capital resulting from the reduction of capital under point 2 of the Agenda, insofar as this resolution is not altered by the reverse split provided for in point 3 below. This limit will be calculated taking into account any capital increases carried out under point 6 of the Agenda of the same General Meeting and any issues of convertible securities in which preferential subscription rights have been wholly or partly disapplied, as also envisaged in the abovementioned article 511 of the Spanish Corporations Act, in relation to article 417 of said Act, provided the corporate interests so justify. Accordingly, as set forth above, the purpose of this proposal is to enable the Company to raise the necessary debt capital to 2