Monday 25 September 2017

Rescue of Spanish lender Popular tests new EU bank crisis tool-kit

Banco Popular Espanol
Banco Popular Espanol

Jesús Aguado

EU authorities stepped in to avert a collapse of Spain's Banco Popular following a run on the bank, orchestrating a last-minute rescue by Santander, the country's biggest lender.

Owners of Popular bonds faces losses of some €2bn, while Santander will ask its shareholders for around €7bn of capital to absorb Spain's sixth biggest bank.

Popular's rescue was unveiled as the European Central Bank announced the lender was set to be wound down, echoing a banking crash some five years ago that cost Spain €40bn.

Santander's takeover of the bank, which has been weighed down by risky property loans, for a nominal one euro marks the first use of a stricter European Union regime to deal with failing banks adopted after the financial crisis.

The sale was organised in under 24 hours, and followed a recent acceleration in the withdrawal of deposits, which two people with knowledge of the matter said had in recent weeks hit €18bn - or almost a quarter of the bank's total.

Up to €2bn a day was being taken out of the bank by savers last week, another source told Reuters.

A final decision to sell Popular was made at about 4.30am on Wednesday, Dominique Laboureix, a member of the Single Resolution Board, told a news conference in Brussels.

The SRB is the agency set up by the EU to wind down stricken banks.

Unlike earlier crises, the sale did not spook markets. Bank stocks rose in Europe.

"We got it done before markets opened. That was the target," Elke König, who chairs the Resolution Board, said. (Reuters)

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