Banco Santander ‘Saves’ Banco Popular: It Smells


What was bound to happen has now finally happened; a major European bank has collapsed. Despite not being one of the largest banks, Banco Popular definitely was one of the better-known names in Spain and Southern Europe as a whole.

Right after last weekend, the ECB – which now is the supervising regulator – decided Banco Popular was either failing or likely to fail. As part of the renewed ‘rescue plan’ for the financial system, the ECB sought a quick and fast solution to avoid any disruptions in the market which could also put a bullseye target on the back of other banks.

Banco Santander (SAN) will be the ‘hero of the day’, and has agreed to purchase Banco Popular for a symbolic euro. Yes, indeed. One euro. Quite a shock, knowing the bank was worth 1.3B EUR before trading was halted, and in excess of 7B EUR just 24 months ago.

Banco Popular 1

Source: company website

Regulators are patting themselves on the back for a ‘job well done’, and the financial analysts agree a potential systemic crisis has now been nipped in the bud. Great news, right?

It depends on your point of view. Did Banco Popular collapse? Officially not, as it was bailed out by Banco Santander before it would crash. But it’s impossible to deny the bank was indeed failing. A surprise, as the Spanish economy has been recovering, and Banco Popular’s strong position on the SME market should have put the company in a pole position to benefit from the improving economy on the Iberian Peninsula.

Let’s take a step back, and have a look at Banco Popular’s most recent market announcements.

The company did confess a small net loss in the first quarter, but this was entirely due to recording provisions for its poor performing real estate division which contained almost 40B EUR in bad loans.

Banco Popular 2

Source: quarterly report

At the end of the first quarter, Banco Popular had a CET 1 ratio of10.02%, a total capital ratio of 11.91% and a book value of 2.64 EUR per share.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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