In Depth

UK investors foot bill for Santander rescue of Banco Popular

Stricken Spanish bank's shareholders are biggest losers from nominal €1 deal

Santander Bank

"British shareholders in Santander will be asked to dig deep into their pockets to fund the multibillion-euro rescue of a failing Spanish lender," says The Times.

The high street giant has stepped in to rescue Banco Popular – after warnings from the European Central Bank that it was close to collapse – in a deal pushed through by the EU's banking resolution body.

The Spanish bank has been bought for a nominal €1 but Santander says it will need to raise €7bn to cover balance sheet liabilities.

"To prevent Banco Popular from collapsing, Santander said that it would provide €7.9bn in additional loss provisions against its toxic loan book, of which €7.2bn is earmarked for bad debts against property."

To avoid their shares being diluted, UK investors will be "among the largest contributors to the cost of the bailout", adds the Times. 

Through its London listing, British shareholders make up about 35 per cent of Santander's base of individual investors. The bank is the second most widely owned stock on the UK market.

Initially – and perhaps in recognition of these costs – Santander's London shares were traded down around three per cent. They eventually closed yesterday two per cent down at £4.97 a share.

But the stock has recovered today, rising by 4.5 per cent to just shy of £5.20 a share.

This perhaps reflects the boost the buyout will give to Santander's geographic footprint in Spain and Portugal, especially to its small business customer base, at a time when the Spanish economy is recovering strongly.

The Financial Times says that after the deal Santander will be by far the largest SME lender in Spain, with a market share of 25 per cent.

The biggest losers from the deal, says the Times, are Banco Popular's shareholders, whose equity value has been reduced to zero. Even bondholders will be "wiped out to the tune of about €2bn".

Ana Botin, executive chairwoman of Santander, said: "This deal is good for Spain and it's good for Europe."

Santander buyout of rival 'forced through' to avoid banking collapse

7 June 

Santander's rescue buyout of rival Spanish banking group Banco Popular was "forced through" by the European Union body which deals with troubled eurozone lenders, according to reports.

After Banco's value was essentially wiped out - it made a loss of €3.5bn (around £3bn) last year and is said to need as much as €5bn (£4.3bn) in new funding to shore up its capital base - Santander announced today it would "take over 100 per cent of Banco's shares and debt at a symbolic price of €1", reports the Financial Times.

According to the BBC, Banco was trying to raise capital by selling assets and had been the subject of a buyout "bidding process". However, that sales effort "ended last month… as a handful of institutions pulled out".

In a statement, the European Central Bank (ECB) said "the significant deterioration of the liquidity situation of the bank in recent days led to a determination that [it] would have... been unable to pay its debts or other liabilities".

Consequently, it referred Banco to the Single Resolution Board (SRB), which in turn "forced through" the sale to Santander, says the BBC.

The SRB was set up last year in response to the eurozone crisis five years ago, with a mandate to "deal with winding up struggling banks".

However, Santander is not going to get away with paying nothing for its rival: it has said it will raise €7bn (£6bn) to "cover the capital and the provisions required to reinforce the balance sheet of Banco Popular", says the FT.

The buyout increases Santander's geographical coverage across Spain and Portugal and "significantly strengthens the group’s footprint in lending to small and medium-sized enterprises", adds the paper, which believes, coming at a time when the Spanish economy is "in the midst of a strong economic recovery", this will boost profits in the longer term.

Investors appear to disagree, trading the bank's shares down 2.6 per cent to £4.93 a share.

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