Spain’s Banco Popular sold in risk-avoidance move
EUROPEAN authorities announced yesterday the sale of Spain’s Banco Popular to compatriot Banco Santander to avert a looming failure of the troubled lender in a solution that will not leave Spanish taxpayers to pick up the tab.
The European Central Bank, in its capacity as the eurozone’s banking supervisor, said that Banco Popular was “failing or likely to fail” following a “significant deterioration of its liquidity situation”.
And as a result, it would be sold to Banco Santander.
It was the first time such a decision has been taken since the ECB took over the role as Europe’s banking supervisory authority in November 2014.
“The significant deterioration of the liquidity situation of the bank in recent days led to a determination that the entity would have, in the near future, been unable to pay its debts or other liabilities as they fell due,” the ECB explained.
“Consequently, the ECB determined that the bank was failing or likely to fail and duly informed the Single Resolution Board, which adopted a resolution scheme entailing the sale of Banco Popular Espanol to Banco Santander.”
The SRB – tasked with ensuring an orderly resolution of failing banks with minimal costs to taxpayers and to the real economy – said in a separate statement that it had “transferred all shares and capital instruments” of Banco Popular to Banco Santander.
The purchase price paid by Santander was the symbolic price of one euro.
“This means that Banco Popular will operate under normal business conditions as a solvent and liquid member of the Santander Group with immediate effect,” the SRB said.
No public bailout
“The decision taken today safeguards the depositors and critical functions of Banco Popular,” said SRB chief Elke Koenig.
“This shows that the tools given to resolution authorities after the crisis are effective to protect taxpayers’ money from bailing out banks.”
Banco Popular, Spain’s seventh biggest bank, was suffering from the weight of the “toxic assets” it accumulated during the financial crisis – property taken from individuals or developers unable to reimburse their loans – as buyers remain scarce.
Sold at a loss, these forced the bank into a net loss of 3.5 billion ($3.9 billion) last year.
Fears of its looming collapse had sent Banco Popular shares into free fall on the Madrid stock exchange in recent days, wiping off half of its market capitalisation within the space of a week.
Its shares had traded at just 32 cents on Tuesday and were suspending from trading yesterday.
For its part, Banco Santander is Spain’s biggest lender and one of the leading banks in the euro area.
It said that it had been “selected as the successful bidder” in an auction by the European and Spanish authorities.
The purchase would grant Santander access to the market for small and medium-sized enterprises, it argued.
Santander said it would issue 7 billion worth of new shares in a so-called “rights issues” in which existing shareholders will have preferential rights on the new shares.
Initially, investors did not seem to be particularly enamoured with the prospect of Santander taking over Banco Popular and Santander shares dropped by as much as three percent on the Madrid stock exchange at the start of trade.
But by late morning, they had made good those losses and were showing a gain of 0.7 percent at 5.84, while the overall market was up 0.4 percent.
Spanish Economy Minister Luis de Guindos welcomed the solution to sell Banco Popular to Santander, saying it was “a good outcome for the bank, given the situation it has found itself in recent weeks”.
He stressed that the operation would be carried out “without the use of public resources and without the risk of any possible contagion” for Spain’s sovereign debt, as had been the case in the past.
“The current situation is very different to what it had been in 2012, given the good health of the financial sector and the Spanish economy in general,” the minister said.
The EU provided a bailout loan of 41 billion to Spain in 2012 to rescue banks which were overburdened by loans which had gone bad when the country’s property bubble burst and the global economic crisis hit.
While unemployment remains high, Spain’s economy, the fourth-largest in the eurozone, has returned to strong growth. It expanded by 3.2 percent in 2016 and is expected to attain growth of close to 3 percent this year.