Tuesday 6 December 2016

Banco Popular Espanol plan for 'bad bank' falters

Manuel Baigorri

Published 24/11/2016 | 02:30

Non-performing real-estate has affected Popular's balance sheet
Non-performing real-estate has affected Popular's balance sheet

Banco Popular Espanol SA, the beleaguered Spanish lender whose shares have dropped two-thirds this year, is struggling to achieve the financial terms it set out for a €6bn spinoff of real-estate assets, according to three people familiar with the matter.

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Popular, which is working with Deutsche Bank AG, is finding it difficult to finalise financing with potential lenders and some global investment banks have already declined to participate, the people said, asking not to be identified because the deliberations are private. Four institutions have nevertheless made a preliminary commitment to support the deal and Popular has hired a chairman and a chief executive officer for the new company, another person familiar with matter said.

Popular, for its part, said it will meet its goal of completing the spinoff during the first quarter of next year.

"Popular announced as a result of the capital increase carried out in June that it would create an independent company to manage non-producing assets," the bank said in an e-mailed statement. "This is a project that is in its final stage and will be completed within the foreseen timeframe already known to the market."

A spokeswoman for Deutsche Bank declined to comment.

The bank plans to create a new company to hold non-performing real-estate assets that have been weighing down its balance sheet since Spain's property market crash.

Popular plans to hand over the new unit's stock to its existing shareholders before listing the company in 2017.

"The bank is running against the clock to deliver on its plan, because there will be a new round of consolidation and at current valuations it will be hard for it to continue as an independent player," said Jose Ramon Iturriaga, a Madrid-based fund manager at Abante Asesores Gestion, where he manages €250m of assets including Popular stock.

The holding company would use both a senior loan of more than €2bn and subordinated debt to acquire the real-estate assets, the people said. While the bank may still be able to carry out the transaction, significant changes to the terms could further erode investor confidence, the people said.

Chairman Angel Ron is under increasing pressure at Popular after the €2.5bn share sale in June failed to reassure investors the bank won't need more capital. The stock is the worst performer in the Stoxx Europe 600 Banks index over the past three months.

The Spanish banking industry is poised for another round of consolidation, banking executives have said, and the pace of mergers may accelerate after a new government took office last month. Popular is increasingly seen as a potential takeover target.

(Bloomberg)

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