Credit where credit’s due: The sale for 1 euro of Banco Popular Espanol SA, a failing Spanish bank, to rival lender Banco Santander SA shows how the euro zone should handle such cases. The regulators acted swiftly and fairly. Global markets barely noticed. This is a model for future interventions.
Banco Popular’s troubles date back to Spain’s real-estate crisis, which left the lender with 37 billion euros in nonperforming loans. The bank reported a 3.6 billion-euro loss for the last financial year, spooking investors and leaving regulators looking for a solution.
On Tuesday, the European Central Bank labeled the bank “failing or likely to fail.” The Single Resolution Board, the body in charge of managing bank closures, promptly stepped in, forcing the sale to Santander and pushing losses onto shareholders and junior creditors.
Speedy action will prevent the problem from getting any worse. The sale protects depositors and keeps the bank’s lending operations intact under new management, minimizing any knock-on effects. Investors took it all in stride. The Euro Stoxx 600 Banks Index rose on Wednesday and global markets were unperturbed.
Best of all, the sale spared Spain’s taxpayers the cost of another bailout. The Single Resolution Board wisely insisted on forcing the bank’s losses onto shareholders and junior creditors. It’s right that investors should face the cost of the risks they take — not only because it’s fair, but also because it gives banks a clearer interest in managing those risks more carefully.
True, the sale raises some questions for Santander. Spain’s largest bank will need to raise 7 billion euros in fresh capital and clean up a toxic loan book it may have had only a few days to assess. Some fear that the bank came under political pressure to agree to the deal. (Chairman Ana Botin says otherwise.) That would be a pity, especially if the bank comes to regret the acquisition.
Nonetheless, the decisive resolution of Banco Popular is a step forward for the euro zone. It’s all the more valuable because investors had previously raised doubts about the credibility of Europe’s regulators. In the case of Italy’s troubled banks, the ECB’s Single Supervisory Mechanism has been slow to act, partly because the Italian authorities have resisted the kind of bail-in used in Spain.
Perhaps that will now change, as it should. Swift bank resolutions don’t always succeed, but drawn-out denials of the problem always fail.
–Editors: Clive Crook, Ferdinando Giugliano.
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