Santander to take over Banco Popular after ECB declares bank ‘failing or likely to fail’

Spanish bank Santander will take over struggling smaller rival Banco Popular which has suffered a sharp fall in its share price in the last week over fears about its liquidity situation.

Santander said on Wednesday it would take over 100 per cent of Banco’s shares and debt at a symbolic price of €1 and carry out its own €7bn share-raising to “cover the capital and the provisions required to reinforce the balance sheet of Banco Popular”.

Santander added the deal would have a “neutral” impact on its core capital ratio (CET1).

Banco’s share price has has lost half its market value in the last four days amid fears the lender is running out of time to plug a capital shortfall, after a series of bidders reportedly dropped out of an auction to buy it up. Yesterday rating agency Moody’s downgraded Banco’s unsecured debt and deposit rating.

The European Central Bank said this morning it had determined Banco was “failing or likely to fail” following a deterioration in its liquidity situation.

The ECB, which is responsible for supervising the eurozone’s largest banks, said it had warned the body charged with winding down failing banks, the Single Resolution Board, of its assessment on Tuesday.

“The significant deterioration of the liquidity situation of the bank in recent days led to a determination that the entity would have, in the near future, been unable to pay its debts or other liabilities as they fell due,” said the ECB.

“Consequently, the ECB determined that the bank was failing or likely to fail and duly informed the Single Resolution Board (SRB), which adopted a resolution scheme entailing the sale of Banco Popular Español S.A. to Banco Santander.”

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The European Commission approved the deal on Wednesday morning, noting the takeover would mean “customers of Banco Popular will continue to be served with no disruption to the economy”.

“All depositors continue to have uninterrupted access to the full amount of their deposits”, said Brussels.

The SRB was formally set up in 2015, as part of the broader effort to establish a European banking union. Its self-declared task is to ensure the orderly resolution of failing banks “with minimum impact on the real economy and the public finances” of member states.

Elke König, the chair of the SRB, said:

The decision taken today safeguards the depositors and critical functions of Banco Popular. This shows that the tools given to resolution authorities after the crisis are effective to protect taxpayers money from bailing out banks.

Popular, which unveiled a €3.5bn loss for the last financial year, needs €3-5bn in additional capital, according to analyst estimates. With a capital increase looking increasingly out of reach, the bank’s management had been working frantically to pull off a sale to one of Spain’s larger banks.

Santander said the deal would create Spain’s largest bank by lending and by assets and boast 17m customers. In Portugal, the combined group will serve more than 4m clients.

Crucially for Santander, the acquisition of Popular significantly strengthens the group’s footprint in lending to small and medium-sized enterprises (SMEs) at a time when the Spanish economy is in the midst of a strong economic recovery.

Popular’s SME franchise has long been viewed as the strongest in Spain, and the main reason why rival banks were willing to examine a bid for the troubled bank. Santander said the combined group would enjoy a 25 per cent market share in SME lending in Spain.

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“The combination of Santander and Popular strengthens the group’s geographical diversification at a time of improving economic conditions in both Spain and Portugal,” Ana Botín, the bank’s chairman, said in a statement.

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