Santander buys ‘failing’ rival Popular for €1


One of Spain’s biggest banks has been saved from collapse after it was bought by rival Santander for just €1.

The deal will see Santander take on the bank’s customers, branches and also its liabilities, estimated at around €5bn.

It also means that Santander has now become the biggest banking group in Spain.

The decline of Banco Popular has highlighted two things – the first being that the shockwaves of the financial crisis continue to be felt, nearly a decade after it happened.

The second is that by orchestrating the takeover deal, European authorities have shown their teeth and an appetite to intervene.

Banco Popular was facing financial crisis after building up billions of euros worth of toxic debts in recent years.

The bank had lent heavily into the property market, which slumped in the wake of the 2008 crisis, leaving Popular with billions of euros worth of bad debts.

Efforts to restructure the banking group have failed and its share price has plummeted in recent times amid fears that it would slide into insolvency.

The bank’s shares were downgraded to junk status by ratings agencies and its chairman, Emilio Saracho, said in April that Popular needed to find a buyer or issue new shares.

Neither happened.

Instead, it took the intervention of the European Central Bank, which declared that Banco Popular was “failing or likely to fail”, to kick off a process expressly designed to keep the bank afloat.

From the ECB, the onus was passed on to a new body, called the Single Resolution Board, which was set up precisely to deal with this sort of banking failure.

Working alongside the Spanish banking authorities, it drove through the deal to pass the bank into the hands of Santander for a nominal fee.

Banco Popular customers won’t feel the pain – but some investors, who had bought shares and certain types of bonds in the troubled bank, will see a massive hit to the the value of their investments.

However, it means that a huge, systemically important bank is saved without the need for any intervention from the government.

“The decision… safeguards the depositors and critical functions of Banco Popular,” said Elke Konig, chair of the SRB.

“This shows that the tools given to resolution authorities after the crisis are effective to protect taxpayers’ money from bailing out banks.”

So what happens next?

Well, for one thing, Santander will go to the financial markets to raise around €7bn – that’s a lot more than it needs to plug the hole in Banco Popular’s accounts, so it suggests Santander wants to shore up its own finances at the same time.

But another thing that now happens is that eyes turn towards other troubled banks, notably in Italy and Portugal.

The Italian banks Popolare di Vicenza and Veneto Banca are both talking to shareholders about a rescue deal, but there is no guarantee that either will be agreed.

All this comes just days after the Italian government agreed a deal to save the hobbled Monte dei Paschi di Siena bank.

In Portugal, meanwhile, a deal to rescue Novo Banco through a sale to an American private equity firm is being resisted by investors, who stand to make heavy losses.

If it proves impossible to find agreement in either Italy, or Portugal, or both, then the SRB may be called on to help.

And lest we think we’re too far detached from any of this, in Britain RBS remains resolutely stuck on the Government’s books, a long way from being sold back to the public at anything remotely looking like a profit.

The age of the fragile bank is still firmly with us.