Madrid (Reuters) – Rescue in dire straits: major Spanish bank Santander takes over domestic rival Banco Popular, saving it from collapse.
A man uses a cash dispenser at a branch of Spain's biggest bank Santander next to a Banco Popular branch on the same day Santander announced that it would buy struggling rival Banco Popular for a nominal one euro after European authorities determined the lender was on the verge of insolvency, in Madrid, Spain June 7, 2017. REUTERS/Juan Medina TPX IMAGES OF THE DAY – RTX39FTA
The deal was sealed for a symbolic euro and announced on Wednesday. However, it is not a bargain for Santander, as the bank has to launch a capital increase worth billions of euros to shoulder the risks. Economy Minister Luis de Guindos expressed relief that taxpayers were spared: "This is a good result". The situation at Banco Popular had deteriorated dramatically in recent days as many savers had emptied their accounts. In the end, the European bank resolution authority SRB had to act overnight. The European Central Bank had the sixth largest financial institution in Spain with its 1800 branches and almost 12.000 employees, the bank was not considered viable.
This is the first time that the new bank resolution rules, which have been in force in Europe since the beginning of 2016 as a lesson from the financial crisis and provide for a contribution from investors ("bail-in"), have been used.[nL8N1J42HY] At Banco Popular, shareholders now lose their entire stake, subordinated bondholders lose two billion euros. The EU Commission stressed that the taxpayer would not have to pay a cent for the bailout. "All savers will continue to have access to all their deposits."In 2016, Popular managed customer deposits of nearly 100 billion euros. SRB CEO Elke Konig also expressed satisfaction: "The decision taken today protects savers and safeguards crucial functions of Banco Popular," she said.
SANTANDER NEEDS SEVEN BILLION EUROS
Banco Popular was caught in the maelstrom of the domestic housing crisis. The bank is saddled with 37 billion euros in bad mortgages and real estate that fell to it in the wake of over-indebtedness. Santander now has to take on these legacy liabilities and is increasing its own provisioning for problem loans by 7.9 billion euros. It can't shoulder it on its own – and is pushing for a capital increase. Seven billion euros the institution wants to raise from shareholders. They took it calmly: Santander securities were quoted almost unchanged.
Santander CEO Ana Botin stressed that her company had not received any guarantees from the Spanish state or the EU, nor had it been pressured into taking over the crisis bank. Botin focused on the opportunities: the acquisition comes at the right time and is a unique opportunity to expand the business in Spain and Portugal. Banco Popular says it is a leader in lending to small and medium-sized businesses in its home market. Santander would have a 25 percent market share here in the future, Botin calculated. The credit risks are well secured, she added. Major bank expects to save 500 million euros from 2020 onwards. Banco Popular would contribute to profits as early as 2019, he said.
BLUEPRINT FOR OTHERS?
The solution could make school. In Italy, however, where many banks have piled up a mountain of bad loans in the wake of years of economic stagnation, a different path has been taken. Only a few days ago, the EU Commission approved state aid for the crisis institution Monte dei Paschi di Siena. Previously, an attempt to tap the financial market to plug an 8.8 billion euro hole in the balance sheet had failed.
The difference with Banco Popular: The bank was still deemed solvent and therefore allowed to receive a "precautionary recapitalization" by the state under EU rules, without having to ask private investors to pay too much. This is a hot potato for politicians in Italy right now, because Monte Paschi had sold bonds for two billion euros to private investors. Economy and Finance Minister Pier Carlo Padoan had given assurances that the government would not raise the roughly 40.000 small investors want to protect. However, the deal is not yet in the bag: the institution, founded in 1472, still has to sell its bad loans and is negotiating with a domestic fund and a group of investors.
Other Italian financial institutions must continue to tremble. Government circles on Wednesday dismissed a report in the Corriere della Sera newspaper that the state is also considering an "orderly liquidation" of the two crisis institutions Popolare di Vicenza and Veneto Banca. The two financial institutions have been desperately seeking fresh money for months. They need to raise 1.2 billion euros in private funding to get the green light from the EU Commission for state aid. But according to insiders, financial investors have turned down the offer. The rescue fund Atlante, which is backed by banks and insurers, does not want to inject any more money. He had already raised 3.4 billion euros for the two banks last year.