Santander Buys Banco Popular After ECB Determined Rival Was 'Likely to Fail' -- Update

By Jeannette Neumann Features Dow Jones Newswires

Banco Santander SA has acquired Banco Popular Español SA in an overnight auction for the notional amount of EUR1 ($1.13) after the European Central Bank determined that Spain's No. 6 bank by assets was "failing or likely to fail."

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Santander said it planned to raise EUR7 billion in a rights issue before the end of summer to fund a cleanup of Banco Popular's balance sheet.

While Spain's major lenders are on stable financial footing, Banco Popular has been the weak link, with a balance sheet weighed down by around EUR37 billion in foreclosures and other nonperforming assets accumulated when the country's real-estate boom went bust. The bank's share price has plummeted more than 50% in the past week alone on investor concerns it wouldn't be able to sell assets, raise capital or find a buyer.

"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," the ECB said in a press release on Wednesday. "Consequently, the ECB determined that the bank was failing or likely to fail and duly informed the Single Resolution Board, which adopted a resolution scheme entailing the sale of Banco Popular Español S.A. to Banco Santander."

The European Commission, in a separate release, stressed that no taxpayer support or aid from the EU was provided for the acquisition.

The combination of Banco Popular and Santander creates Spain's largest bank by lending and deposits, with 17 million customers, Santander said in a press release. While Santander is one of Europe's largest banks, it wasn't the biggest in its home market. Rivals Banco Bilbao Vizcaya Argentaria SA and CaixaBank SA had more assets in Spain after a string of acquisitions.

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Banco Popular's strong franchise lending to Spain's small- and medium-size businesses had attracted potential bidders. Spanish banks have tried to boost their loans to small- and medium-size companies as their bread-and-butter business of selling mortgages has been less robust amid Spain's economic recovery from a deep crisis.

Santander also acquired Banco Popular's unit in Portugal, where Santander has a large market share.

Santander said the transaction is expected to generate a return on investment of 13 to 14% in 2020 and would boost earning a share by 2019.

Santander will book EUR7.9 billion in provisions for Banco Popular's nonperforming assets. That will increase coverage for real-estate assets and nonperforming loans to 69% from 45%, which was the lowest coverage ratio among major Spanish banks.

Write to Jeannette Neumann at jeannette.neumann@wsj.com

(END) Dow Jones Newswires

June 07, 2017 03:56 ET (07:56 GMT)