SPAIN’S BIGGEST bank Santander acquired fellow Spanish lender Banco Popular in an overnight auction on Tuesday/ Wednesday for €1 after the European Central Bank warned that Spain’s No. 6 bank by assets was on the verge of collapse.
The purchase, announced on Wednesday, means Santander will acquire 100 per cent of the struggling bank’s shares and debt. Santander also plans its own capital increase worth €7 billion to cover the absorption.
‘This process has been triggered by the ECB after seeing the unviable situation of the bank,’ said Spain’s Fund for Orderly Bank Restructuring (FROB).
Banco Popular’s lack of viability, it added, ‘is due to liquidity problems associated with the deterioration of its deposit base over recent months and the uncertainty about its own plans to face up to the possible deterioration of the bank’s balance sheet.’
Banco Popular shares had lost more than half their value over the last week as investors became increasingly concerned it wouldn’t be able to sell assets, raise capital or find a buyer.
Ahead of Wednesday’s sale, many branches saw frantic scenes as shareholders and other clients demanded information about the banks’ situation.
On Tuesday, at a branch in Marbella, security guards were forced to intervene as a group of shareholders demanded to be allowed to sell their investment.
The purchase marks the first use of an EU regime to deal with failing banks adopted after the financial crisis.
It breaks the mould of using taxpayers’ money, instead imposing steep losses on shareholders and some creditors of the bank
The owners of so-called AT1 and AT2 bonds suffered roughly €2 billion of losses, while shareholders lost everything. Senior bondholders were spared.
Banco Popular’s strong franchise lending to Spain’s small and medium-size businesses had attracted potential bidders. Spanish banks have tried to boost their loans to SMEs as the sale of mortgages has been less robust amid Spain’s economic recovery.
Santander also acquired Banco Popular’s unit in Portugal, where Santander has a large market share.
Santander said the aquisition will make it Spain’s largest bank in terms of assets and lending, with 17 million customers. Executive Chairman Ana Botin said the buy would strengthen her group’s diversification ‘at a time of improving economic conditions in both Spain and Portugal, and will allow us to continue to deliver for customers and shareholders on all our commitments.’