By Jesús Aguado and Francesco Guarascio
MADRID/BRUSSELS (Reuters) – European authorities stepped in to
avert a collapse of Spain's Banco Popular following a run on the
bank, orchestrating a last-minute rescue on Wednesday by
Santander , the country's biggest lender.
Owners of Popular bonds faces losses of some 2 billion euros,
while Santander will ask its shareholders for around 7 billion
euros ($7.9 billion) of capital to absorb Spain's sixth biggest
Popular's rescue was unveiled as the European Central Bank
announced the lender was set to be wound down, echoing a banking
crash some five years ago that cost Spain 40 billion euros.
Santander's takeover of the bank, which has been weighed down by
risky property loans, for a nominal one euro marks the first use
of a stricter European Union regime to deal with failing banks
adopted after the financial crisis.
The sale was organized in less than 24 hours, and followed a
recent acceleration in the withdrawal of deposits, which two
people with knowledge of the matter said had in recent weeks hit
18 billion euros, equivalent to almost one quarter of the total.
A final decision to sell Popular was made at about 0430 GMT on
Wednesday, Dominique Laboureix, a member of the Single Resolution
Board, told a news conference in Brussels. The SRB is the agency
set up by the EU to wind down stricken banks.
In contrast to earlier crises, the hurried sale of Popular did
not spook markets and banking stocks rose in Europe.
"This deal is good for Spain and it's good for Europe," Santander
chairman Ana Botin said of the agreement, which breaks the mold
of using taxpayers' money, instead imposing losses on
shareholders and creditors of the bank.
This resolution worked in Santander's favor, and was described by
two debt investors as unexpected, with the owners of so-called
AT1 and AT2 bonds suffering roughly 2 billion euros ($2.2
billion) of losses and shareholders losing everything.
The ECB said there was a "significant deterioration of the
liquidity situation of the bank in recent days" and that in the
near future Popular would have been "unable to pay its debts".
Up to 2 billion euros a day was being taken out of the bank by
savers last week, another source told Reuters.
"We got it done before markets opened. That was the target," Elke
König, who chairs the Resolution Board, said.
Unlike Italy, which has been grappling with problem lenders for
years, Spain's reaction was prompt and in contrast to the 2008
banking crisis it met with calm in the markets.
"This shouldn't pose any real problems for other banks," Aberdeen
Asset Management Head of Credit Research Laurent Frings said.
"But it does show that there is real risk in investing in these
BOTIN SEES BENEFITS
Spanish Economy Minister Luis de Guindos said Santander's
takeover was a good outcome for Popular given its situation in
recent weeks and it would have no impact on public resources or
Botin welcomed Popular customers and said that the combination of
the two would strengthen Santander's geographic reach as the
economies in Spain and Portugal improved. "It gives certainty and
stability to Spain's financial sector," she said.
Santander, which was unaffected by the banking crisis in Spain
that forced Madrid to seek international aid, said buying Popular
would accelerate growth and profit from 2019.
The group, with operations from South America to Britain, said it
would set aside 7.9 billion euros to cover the cost of
non-performing assets, which are loans at risk of non-payment.
Struggling under the weight of 37 billion euros of non-performing
property assets left over from Spain's financial crisis, Popular
had seen its share price slump.
It was among a handful of banks that emerged as vulnerable to
stress, such as an economic downturn, in a European Banking
Authority simulation last summer and had remained vulnerable with
a ratio of risky loans around three times above the average of
its Spanish rivals.
But Popular's small and medium-sized company loan portfolio, the
largest among Spanish lenders, presents an opportunity for
Santander, which said it would now lead this growing market.
It will also sell off at least half of Popular's property assets
within about 18 months.
($1 = 0.8876 euros)
(Additional reporting by Andres Gonzalez, Jose Elias Rodriguez,
Angus Berwick and Sonya Dowsett in Madrid, Francesco Canepa in
Frankfurt and Jan Strupczewski, Francesco Guarascio in Brussels
and Helene Durand in London; writing by John O'Donnell; Editing
by Keith Weir/Alexander Smith)