Banco Santander has purchased Banco Popular for one euro. The operation, promoted from Brussels and executed via auction after determining the non-viability of the Popular , supposes the end to the soap opera of what was the most profitable entity in the world. Today, its reality is diametrically opposed, after a spiral of loss of value for months. The resolution implies that shareholders and holders of subordinated debt lose all their money, a measure that will prevent them from putting public money.
To heal Popular’s balance sheets , which suffer a late entry into the brick and a high percentage of bad loans, Santander will increase capital by 7,000 million to avoid altering its current ratios and swallowing without trauma its up to now competitor. The entity affirms that there are no counterparties or public guarantees in the operation.
Boundary situation and intervention
The situation of the Popular was critical . The European Central Bank (ECB) concluded that it was at risk of falling due to the “significant deterioration” of its liquidity in recent days, as a result of a continued flight of deposits and a lack of clarity in its future plans. On the stock exchange, in the last week the collapse had exceeded 50%. It was, data in hand, unfeasible: an urgent examination was carried out through an independent analyst and shed losses of 2,000 million in a central scenario and up to 8,200 million in the worst scenario.
Therefore, this Wednesday the entity intervened, which came under the control of the Fund for Orderly Bank Restructuring (FROB). An auction process was started by auction, which left Santander as the winner. It is not known if other entities submitted offers, although the FROB states that its offer was the “only” one that met the requirements for admission.
The entire process was authorized by the European Commission. In this way, the mechanism, adopted by the Single Board of European Resolution and executed by the FROB, closes the drama of Popular.
The future of the brand
The Popular brand will disappear, putting an end to ninety years of history. From the beginning, it will be integrated into Santander, including customers, to then merge. Botín has requested tranquility from clients, whose deposits are not in danger. “Nothing changes for the Popular customers,” who will be served by the same people, he said.
Where there will be changes is in the current Popular dome, which will be relieved. Banco Santander has immediately appointed a new board of directors at Banco Popular that will be made up of five members and will be chaired by Javier García Cantera.
It will lead the market, but it will lighten the weight of real estate
The resulting entity will be the leader in Spain in asset management, with a combined volume of over 485,000 million, ahead of CaixaBank. It will have 17 million customers and will have the leadership in credit and in the SME market, which was a strong point of Popular. Santander expects the operation to be profitable in three years.
Popular’s accounts are heavily burdened by real estate assets. This week he had to complete the revaluation of his portfolio, a titanic task that would give more clues to potential buyers, something that is not necessarily necessary. Brussels has not wanted to wait any longer. At a press conference, Santander has reported that half of the real estate portfolio will be released in 18 months.
The Government and the FROB bless the resolution
The Government has given its blessing to the sale process. The Minister of Economy, Luis de Guindos , affirms that it is “a good exit for the entity given the situation that had arrived in recent weeks, since it implies maximum protection to depositors and the continuity of the activity”. Guindos has asked to appear before the Committee on Economy, Industry and Competitiveness to report on the process of resolution and sale of Banco Popular
From his Ministry, the sector had been encouraged to take over the Popular, even taking Bankia – public entity by 65% - to the final stages of the acquisition process, fearing that a sale to other entities would not be completed and would end in settlement.
In a similar line, the FROB, which has managed the sale, details that through this decision the security of depositors is guaranteed and the absence of impact for public finances.