After the purchase by Santander of Banco Popular, two more Spanish banks are in trouble.
The Santander purchase of Banco Popular, for a nominal €1, is being followed up by a €7 billion rights issue to bolster Popular’s finances.
Shareholders and bond holders at Popular will lose investments totalling €3.3 billion but the deal set up by Europe’s Single Resolution Board means Spain's taxpayers were not asked to contribute.
This Board was established to cover banking failures and to ensure EU countries no longer resort to using taxpayers’ cash to shore up domestic deadbeat banks.
Popular was imploding with €37 billion of bad property loans and billions of euros withdrawn by its customers in the past few weeks.
The European Central Bank decided that Popular was “failing or likely to fail” and called in the Single Resolution Board which ensured Santander’s purchase was swift and successful.
Brussels hoped 'that that was that,' and that the Popular problem had been contained but already the market has reacted with Unicaja and Liberbank in deepening trouble.
Liberbank’s share price fell by over 40% last week and the initial public offering of Unicaja, scheduled for this summer, could also be hit as the value of one of its bonds has fallen 60% in the past few days.
Eurointelligence commented that “despite the fact that the European Single Resolution Board indeed acted swiftly and decisively, the FT relays concerns that the congratulatory backslapping that greeted the resolution of Popular may not be justified. In particular, there are questions over the slowness of the reaction of the single supervisory mechanism.
“Moreover, the celebratory observations that there had been no contagion may also have been premature. Since the market opened on Wednesday with the news of the resolution of Popular, the stock of Liberbank ... has lost 48% of its value including 20% and 19% drops on Thursday and Friday, erasing the gains of an entire year.”
Santander quickly announced 3,000 job losses at Banco Popular in Spain and a 33% cost reduction programme for its smaller Portuguese operation.
With the sale of Novo Banco to the US vulture fund ‘Lone Star’ on the horizon and investigations continuing into past management actions and lending decisions at Caixa Geral de Depósitos, as it prepares for a massive injection of taxpayer funds, the sector in Portugal cannot be said to be strong and stable.
With the government no longer able to bail out Portugal’s banks with taxpayers’ funds - and with an oversupply of mid-range, over-stretched and inefficient banks choking the marketplace - many in the financial sector now are asking - which bank will be next?
