Global bank shares and markets survived the news last night that Banco Popular, a big Spanish bank has had to be rescued by a rival to stop a collapse that could have triggered a financial crisis in the country and throughout the eurozone.
The takeover will create the biggest banking group in Spain and a giant in Portugal as well.
The European Central Bank said (https://www.bankingsupervision.europa.eu/press/pr/date/2017/html/ssm.pr170607.en.html), European time that it had determined the struggling Spanish lender was “failing or likely to fail” following a deterioration in its liquidity.
Spanish banking giant Santander will take over struggling smaller rival Banco Popular which had seen its shares lose more than half their market value in the past week over fears about the bank’s liquidity situation. In fact the shares have fallen from 1.01 euros at the start of the year to 31.7 euro cents at Tuesday’s close when it was still worth $1.33 billion euros (about $A1.8 billion).
Santander said it would take over 100% of Banco’s shares and debt at a “symbolic” price of 1 euro and carry out its own 7 billion euro share-raising to “cover the capital and the provisions required to reinforce the balance sheet of Banco Popular”.
Banco’s share price has slumped to fresh record lows this week – losing half its market value in four days – as fears spread across markets that it was running out of time to plug a growing capital shortfall, after a series of bidders reportedly dropped out of an auction to buy it up. Yesterday rating agency Moody’s downgraded Banco’s unsecured debt and deposit rating.
The rescue comes a day and a bit before the ECB’s next monetary policy meeting which some analysts had hoped would see a small start to ending the central bank’s expansive policy of quantitative easing and negative interest rates.
The rescue will mean any move to tighten monetary policy has been postponed for months as the ECB will want to see markets settle, especially in Spain where the economy is recovering strongly from the downturn.
Back in February, Popular posted a 3.5 billion euro annual loss due to bad debts, restructuring costs and various write downs. But then in May it shocked markets when it admitted that it was setting aside even more money to cover real estate losses. European banking analysts say it needs up to 5 billion euros of fresh capital, but no one was game to take it on, not even the vulture funds from the US.
With that an increasingly forlorn hope so far as shareholders were concerned, the bank’s management had been working on selling to one of Spain’s larger banks.
Santander said would have 17 million customers as a result of the takeover, making it Spain’s biggest bank. In Portugal, the combined group will have more than 4 million clients.
The ECB, which is responsible for supervising the eurozone’s largest banks, said it had warned the body charged with winding down failing banks, the Single Resolution Board, of its assessment on Tuesday.
“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 in a statement.
Consequently, the ECB determined that the bank was failing or likely to fail and duly informed the Single Resolution Board (SRB), which adopted a resolution scheme entailing the sale of Banco Popular Español S.A. to Banco Santander.”
The European Commission approved the deal on Wednesday morning, noting the takeover would mean “customers of Banco Popular will continue to be served with no disruption to the economy”. “All depositors continue to have uninterrupted access to the full amount of their deposits”, the Commission said (http://europa.eu/rapid/press-release_IP-17-1556_en.htm).
