In what may prove one of the final acts in Spain's banking crisis, Banco Santander SA stepped in to take over Banco Popular Espanol SA before the bank collapsed under a mountain of bad property loans.
Santander will tap shareholders for about €7 billion ($7.9 billion) to shore up Popular's balance sheet after acquiring the bank for €1 in a deal brokered by European regulators, according to a filing Wednesday. The deal imposes losses of about €3.3 billion on Popular stock and bondholders and serves as the first real test of European rules to deal with failing banks.
The forced sale is 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 become more urgent in recent weeks. Chairman Emilio Saracho struggled to find a buyer, plans for a possible share sale were complicated by a stock slump and the bank's liquidity situation worsened.
“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. “If the ECB declared Popular as not viable it follows that all these capital instruments go to zero — it's a very interesting situation.”
Bloomberg reported Tuesday that Santander was considering a capital increase of more than €5 billion euros as part of a potential offer and also earlier that Popular was looking at measures to boost liquidity. The ECB, in a statement Wednesday, said the decision to force the sale was based on the “significant deterioration of the bank's liquidity situation.”