Spain's largest bank Santander to buy Banco Popular
07 June 2017
Spain's largest bank Santander will buy struggling rival Banco Popular for a nominal €1 after European authorities determined the lender was on the brink of insolvency.
Santander will ask investors for around €7 billion ($7.9 billion) of fresh capital to cover the cost of bolstering Popular, which had taken risky property loans of billions of euros.
The rescue, which comes after a declaration by the European Central Bank (ECB) that Banco Popular was set to be wound down, comes as the first instance of an EU regime for dealing with failing banks, which was adopted after the financial crisis.
It marks a departure from the practice of using taxpayers' money, rather than imposing steep losses on shareholders and some creditors of the bank. According to two debt investors the step was unexpected, Reuters reported.
The owners of so-called AT1 and AT2 bonds took a €2 billion hit, while shareholders lost everything.
Popular, Spain's sixth biggest bank, had been struggling for long and repeatedly asked shareholders for fresh money. But a recent acceleration in the withdrawal of deposits added to its funding problems, triggering its sale.
The ECB had blamed what it called a "significant deterioration of the liquidity situation of the bank in recent days" in concluding that it "would have, in the near future, been unable to pay its debts or other liabilities."
The forced sale comes as the first major action by the Brussels-based Single Resolution Board, set up in January 2015 to deal with euro-area bank failures and wind them down with minimal impact on taxpayers and financial stability. Popular's situation had worsened in recent months, with chairman Emilio Saracho unable to find a buyer and plans for a possible share sale complicated by a stock slump.
''Santander is a dealmaker and it was the most likely to go for this,'' said Inigo Lecubarri, founding partner of Abaco Asset Management LLP, who helps oversee more than $1 billion invested in mostly European financial stocks, Bloomberg reported. ''If the ECB declared Popular as not viable it follows that all these capital instruments go to zero - it's a very interesting situation.''