Spain's Banco Popular Bailed In, Acquired By Santander For €1.00

Just four days after Banco UnPopular chairman Emilio Saracho told his employees "don't panic" as a result of the company's crashing stock price, on Wednesday morning the ECB confirmed that the sixth largest Spanish bank was indeed on the verge of collapse and ordered it to be sold, which is what happened when Santander acquired the bank for €1.00 after Santander's equity and riskiest debt instruments were bailed-in, i.e. wiped out, imposing losses of about €3.3 billion on the bank’s securities holders.

This transaction was bad news for the company's equity and holders of contingent convertible AT1 and AT2 holders, who have the distinction of holding the first major bank capital bonds to be bailed-in/wiped out under new EU regulations. While Banco Popular senior debt is 12 points higher this morning, the AT1 perps are trading at 5%, down 50 points. As Mint's Bill Blain notes, "we’ve not seen crashes like that since 2008."

The ECB forced the transaction, blaming what it called a "significant deterioration of the liquidity situation of the bank in recent days" in concluding that it "would have, in the near future, been unable to pay its debts or other liabilities." Elke König, Chair of the Single Resolution Board, an EU agency that winds down stricken banks, said that intervention had been needed overnight.

The mechanics: in the first use of Europe's newsly adopted bail-in mechanism, Popular would see shares resulting from the conversion of its riskiest debt and Tier 2 instruments wiped out, imposing losses of about 3.3 billion euros on the bank’s securities holders. Concurrently, Popular would be acquired by Spain's biggest bank, Santander for a nominal €1.00. To fund the deal, Santander will raise €7 billion through a rights offer to bolster Popular’s balance sheet, it said in a filing. The lender will acquire Popular for 1 euro after its stock and shares resulting from the conversion of its riskiest debt and Tier 2 instruments were wiped out, imposing losses of about 3.3 billion euros on the bank’s securities holders.

The rescue, which followed a declaration by the ECB that Banco Popular was set to be wound down, marks the first use of an EU regime to deal with failing banks adopted after the financial crisis. It breaks the mould of using taxpayers' money, instead imposing steep losses on shareholders and some creditors of the bank, a step two debt investors described as unexpected. As we had reported over the past month, Popular, Spain's sixth biggest bank, has long struggled and repeatedly asked shareholders for fresh money. Popular’s 37 billion euros of non-performing assets, the legacy of real estate-linked lending before Spain’s property crash, drained profit and capital, forcing new Chairman Emilio Saracho to say in April that the bank would need to sell new shares or find a buyer. The situation had deteriorated in recent days, with its market value falling by about half in a week to 1.3 billion euros. The most recent acceleration in the company's bank run compounded its funding problems, triggering its sale.

It is unclear if today's "rescue" will stem the deposit withdrawal.

As Reuters notes, unlike Italy, which has been grappling for years with the problems of its lenders, the Spanish reaction to the problem lender was prompt. Furthermore, and in contrast to the banking crisis that unfolded in 2008, the move in Spain was also accepted with calm on stock markets and European bank shares moved upwards.

"This shouldn't pose any real problems for other banks," said Aberdeen Asset Management Head of Credit Research Laurent Frings. "But it does show that there is real risk in investing in these second-tier names."

In an attempt to ease concerns, Spanish Economy Minister Luis de Guindos said that Santander's takeover was a good outcome for Popular given its situation in recent weeks and it would have no impact on public resources or on other banks.

“It’s a unique opportunity at a very good time in the cycle," Santander Chairman Ana Botin said in a presentation to analysts. Annual cost synergies of almost 500 million euros per year from 2020 will give Santander some of the best efficiency ratios in Spain and Portugal, the bank said. In a separate television interview, Botin said that the bank was notified at 6. a.m. today that it had won the bid for Popular. Santander won an auction carried out by the SRB and Spain’s bank rescue fund FROB to buy Popular without taxpayer support, the bank said. Adding Popular’s business will create the biggest banking business in Spain with 17 million customers.

Santander fell as much as 3.4 percent to 5.6 euros, before paring declines to 5.77 euros as of 10:42.a.m. in Madrid.  Botin presented the business case for the hastily-organized deal, arguing that the combination of the two would strengthen the group's geographic reach as the economy in Spain and Portugal improved. "We welcome Banco Popular customers," she said. However, Banco Popular's customers, having come this close to losing their money, may just decide to keep it in the mattress instead.

And while the transaction has yet to be fully digested, here are some initial sellside reactions, courtesy of Bloomberg.


  • Santander’s opportunistic acquisition of Popular fits into group’s strategy to boost SME exposure
  • However, doubt over deal is likely to center on Popular’s sizable non-performing assets
  • Santander’s plans to boost coverage on real-estate NPAs should provide some comfort, though target of reducing these assets appears bold

MIZUHO (Roger Francis)

  • Deal is probably “excellent” for Santander in medium term, though it may weigh on earnings in the first or second year
  • Takeover adds significant business to Santander in terms of SME-lending and credit-card clients albeit with considerable real-estate exposure and non-performing loans that are largely behind Popular’s capital writedowns
  • Sees little impact on wider European banking sector as investors now recognize the situation poses no new dangers to the financial system


  • Santander downgraded to hold vs buy and removed from Spanish top picks on risks from acquisition
  • Limited time for due diligence on Popular’s real-estate exposure and bad loans and other potential risks and costs involved in breaking up the joint ventures raises doubts on whether the measurement of risks has been adequate
  • Combined entity will lose market share; Kepler says doubtful that Popular will be easy to integrate given its “different” risk management
  • Kepler expects litigation for “mis- selling” will require reimbursement of amount invested, given that most of the Tier 2 is held by retail clients; would not rule out litigation from AT1 holders

NATIXIS (Robert Sage and Alex Koagne)

  • Santander’s acquisition of Popular in a deal approved by European regulators shows that weaker parts of region’s banking system are being addressed; fall in systemic risk is positive for wider industry
  • Sees Popular as containing attractive retail/SME franchise with higher returns and margins
  • Santander will need to convince investors Popular’s non-performing assets are properly marked after the takeover
  • Rates Santander neutral with PT EU6


VD Wed, 06/07/2017 - 07:22 Permalink

a Lehman event over in the EU that is quickly swept under the rug with the ECB backstopping the deal. this is the giant fiery QE/NIRP recovery.

CuttingEdge NoDebt Wed, 06/07/2017 - 08:16 Permalink

on Wednesday morning the ECB confirmed that the sixth largest Spanish bank was indeed on the verge of collapse and ordered it to be sold, which is what happened when Santander acquired the bank for €1.00 after Santander's equity and riskiest debt instruments were bailed-in, i.e. wiped out, imposing losses of about €3.3 billion on the bank’s securities holders.

 Unless I'm reading the bit I put in italics wrong, that's a major typo alert, Tylers.

In reply to by NoDebt

Bes SybilDefense Wed, 06/07/2017 - 09:35 Permalink

Bail-inscoming to an american bank soon. Gee.  I wonder what Trump's policy on bail-ins is......or do you still care more about cankles?duped for sure.  hahahaha.#magaps- being critical of orange jesus does not make me a hillary lover.  try having some upper level critical thinking.   stop being binary dumbfucks.  shit is way more complicated and both Cankles and Trump suck deep state dick.  

In reply to by SybilDefense

Ghordius Haus-Targaryen Wed, 06/07/2017 - 08:19 Permalink

"So a semi-insolvant bank acquires another completely insolvant bank, and this is supposed to be a good deal?"interesting. based on which criteria do you deem Santander "semi-insolvent"? as a reminder, the definition for "solvent" is "The state of a company being able to service its debt and meet its other obligations, especially in the long-term"further, you ask "What happens to Santander when interest rates rise?"now, Santander is a bank based in Spain that operates across Europe, North America, Asia but also particularly in South America. you know, where rates rise or ebb quite faster then anywhere else, and currencies can become the playball of many interestsdo you have the impression they are strangers to (expected or unpredicted) rates changes? or currency issues in general?

In reply to by Haus-Targaryen

Ghordius quadraspleen Wed, 06/07/2017 - 08:30 Permalink

it's the ECB that allowed the move and the "Single Resolution Board" (SRB) that orchestrated the sale(the EU Commission as such is not directly involved in EU Agency decisions, and this one has to report/work with the ECB)you are the guy that does not understand why Greeks still want to stay in the EU and keep the EUR, aren't you?well, here you have an example that might give you some ideas: this bank was forcibly sold away. no deposits of people that trusted this bank were touched, no tax-payer money was used for all this. the losers of this are shareholders and bondholderscompare with Hank "Tanks in the streets" Paulson. if you are old enough, remember the "US S&L Crisis"

In reply to by quadraspleen

Offthebeach NoDebt Wed, 06/07/2017 - 07:56 Permalink

Actually it was the medium size banks.  Local small banks very much know their borrowers and borrowers buisnesses, and these banks are owned locally so owners have skin in the game.  These banks survived, however they like worker/producers everywhere were taxed/inshuranced to support too big to fail.

In reply to by NoDebt

smacker Wed, 06/07/2017 - 07:35 Permalink

I'm sure with unemployment in Spain running at astronomical levels, wages static and personal debt levels high, that being bailed-in to save the Popular Bank which some of them have got meager savings deposited in, is just what the Spaniards want. This is bound to improve social cohesion and satisfaction with government. Not.Expect some more street protests down there.

Endgame Napoleon smacker Wed, 06/07/2017 - 07:52 Permalink

I am not saying that it would be good for U.S. companies to invest in Spain, rather than in their own underemployed country, but I wonder why there is an even higher rate of unemployment in Spain. It might just be that the Spaniards report their full unemployment situation, rather than lying and leaving out all of the people who are out of the workforce or underemployed.

Spain is a stable, Western democracy. There must be a bunch of hard-to-navigate, bureaucratic rules or high taxes, stopping businesses from investing there in anything but grabbing up their beautiful coastline property.

In reply to by smacker

smacker Endgame Napoleon Wed, 06/07/2017 - 09:02 Permalink

"It might just be that the Spaniards report their full unemployment situation, rather than lying and leaving out all of the people who are out of the workforce or underemployed."Anything is possible but in my experience Spain's figures on anything are likely to be even more suspect than many other countries. Several years ago there were literally €billions of debts secretly hidden away by many of the province.Example:  "ZH-How Spain's Debt/GDP Ratio is Double What Is Reported

In reply to by Endgame Napoleon

smacker Ghordius Wed, 06/07/2017 - 08:52 Permalink

The article says "Banco Popular bailed-in". That usually means those with deposits or other assorted investments etc are bailed in at various levels.I have not seen the details of this specific bail-in, so you may be right that individual savings accounts won't be skimmed like Cyprus. 

In reply to by Ghordius

back to basics Wed, 06/07/2017 - 07:49 Permalink

"in contrast to the banking crisis that unfolded in 2008, the move in Spain was also accepted with calm on stock markets and European bank shares moved" And this ladies and gentlemen is the precise reason why the market (if you can call it that anymore) continues to march higher no matter what, or no matter how bad the news are. Central bank intervention is a given. Quick, decisive, out in the open and with the blessing of every law maker on the planet. No one will be allowed to fail, no event will be allowed to send equities lower. They removed all risk. It is bullshit, it is criminal, it is the very destruction of capitalism and free markets but it is what it is. Central banks jumped on the tiger's back in 2009 and they know they can't get off without getting mauled so they don't and the beat goes on. 

Endgame Napoleon back to basics Wed, 06/07/2017 - 09:16 Permalink

The family-friendly lawmakers certainly have no problem with letting individuals fail. They are living on the streets all over the country, as long as copulation did not lead to any kids that they have custody of. The country hands out tons of welfare/taxfare to citizens and immigrants as a reward for copulation/reproduction, coming up with ever-new ways to prop up "independent" households for single moms, making sure they do not have any social pressure to marry the fathers of their children, while unprecedented numbers of adults in their prime-earning years (18 and 34) live with their parents.

These are the ones who don't enjoy the taxpayer-financed copulation/reproduction wage supplements. Lawmakers keep talking about rewarding the "working families----"the ones who work." Lawmakers are either making $187,000/year and completely ignorant about how the welfare/taxfare system works, or they think the public is and are trying to get one over on them. Most welfare recipients do work, not hard though. The moms are required to work 20 hours per week or to be looking for work. The "Earned Income" screens at the Department of Human Services reflect moms, going in and out of low-wage, part-time jobs, like millions of other Americans whose wages are not supplemented by thousands in welfare/taxfare as a reward for irresponsibly conpulatimg and producing multiple kids they cannot afford.

Those Americans are punished by this rigged system of rewarding single moms for working a few hours. It drives wages down, because employers know that, in addition to all the moms with spousal income or child support that covers rent, welfare/taxfare moms have "somethin' comin' in " enabling them to accept low wages. They have a financial incentive to accept low wages. The less they make, and the more children they have, the more their major household bills are covered by taxpayers. A huge percentage of immigrants enjoy all of these layers of welfare/taxfare as well.

The rest of us -------- a LOT of citizens and a LOT of voters, as those with low womb productivity are often older and actually take the effort to vote ---- just have the low wages from these momma-clique jobs, with no free food, no free or reduced-cost housing, no free monthly cash, no free energy, no reduced-to-almost-zero-cost daycare and no Child Tax Credits of between $3,337--$6,269 to spend on trips with boyfriends.

The rest of us just have the wages from $10 temp jobs ($20,000/year IF full-time) and no monthly help with unaffordable bills, like rent, and with laughable tax credits of $300 or less. The harder you work, the more government kicks you in the head, especially in self-employment, where you pay twice as much SS tax as these welfare/taxfare-bolstered employees on every penny earned.

States like CA are overflowing with homeless people. With low womb productivity or no wombs, they are living on the streets and in river beds, but $96 million in welfare money is spent by nice mommies -- nice "working families" -- on casinos and out-of-town vacations. Some nice "working families" spend their welfare money on tattoos, cigarettes and liquor.

But, if sexual intercourse or the lack thereof did not lead to reproduction, the USA lets individuals fail in full view of the public. They lay around on the streets and in the river beds. The banks are propped up, like the welfare/taxfare moms.

The USA is now a lotto culture, where hard work means nothing, but a lot of out-of-wedlock reproduction that people cannot afford is rewarded with layered, per-child, monthly benefits that cover basic household bills, making the low wages from temp, part-time amd churn jobs just icing on the cake. Even better, tax-cash rewards for sexual intercourse and reproduction of up to $6,269 allow for freer spending on adult luxuries by "working families."

Then we have our lawsuit wing, with lawyers advertising opportunities to sue on TV. In truth, workplaces are full of frequently absentee, family-friendly bully moms, making sure that work is more about social cliques than serving customers. And there is all kinds of voluntary flirting, which is really just the way life is, because young women always worked before marriage. But the occasional woman makes bank by suing over some man calling her hott, even though most of these working women seek that type of attention out all through her college years in the frat house parties and on the weekends in most cases, making the rounds of the night spots.

There is a fake-pristine, feminist anger over this, combined with tons of unprofessional absenteeism, workplace bullying by mom cliques and ridiculous, mandatory workplace social activities that are stressed over things like generating and retaining a lot of sales and daily, all-day attendance.

But the USA and its working-mom, womb-based culture of fake feminism has plenty of the following in its workplaces: Baby-Mommy-Look-Alike-Bulletin-Board-Decorating Contests; Halloween Dress-Up Days; Adult-Cubicle-Easter-Egg Hunts with a baby-mommy theme; Tacky Christmas Sweater Contests; Spin-the-Wheel Contests, with candy and mom-themed prizes; Family Day Picnics and the like.

At the low end, we have plenty of cash handouts from government to rig workplaces in favor of the working women in their childbearing years who copulate/reproduce without marrying. We have a ton of married women whose husbands make plenty of money to support the family, taking the jobs in nicer, safer areas, accepting low pay to cover luxuries, like more trips. They take off from work all the time, granted excused absenteeism that makes up for their low pay. It drives wages down and causes underemployment among the citizens who lack other sources of income. But those moms can get away from the kids they are bored with, using half of their work time to engage in baby show-off activities. See above. Showing off baby at work is way more interesting that doing the hard work to raise your own babies.

At the high end, two high-earner couples make sure that the good-paying, salaried jobs are concentrated in fewer households without adding new jobs for others by taking any risk with their money to create new businesses. This has greatly contributed to a smaller middle class. They are rewarded by government, too, for their personal-life choice to have kids, rather than sacrificing any material thing for it. They often ask for more excused time off for working moms, mandated by government, so that those decent jobs never open up. No, all of those jobs are not rocket science jobs, demanding high, rare skill levels. Many are "flextime" management jobs. Complete, utter and crony-corrupt absurdity: that is what it has come to.………………

In reply to by back to basics