FRANKFURT”•Spanish bank Banco Popular is “failing or likely to fail” following a significant deterioration of its liquidity situation and would therefore be sold to Banco Santander, the European Central Bank said on Wednesday.
“On June 6, the ECB determined that Banco Popular Espanol was failing or likely to fail,” the central bank said in a short statement.
It was the first time the ECB has issued such a statement in its capacity as Europe’s banking supervisory authority.
“The significant deterioration of the liquidity situation of the bank in recent days led to a determination that the entity would have, in the near future, been unable to pay its debts or other liabilities as they fell due,” it explained.
“Consequently, the ECB determined that the bank was failing or likely to fail and duly informed the Single Resolution Board (SRB), which adopted a resolution scheme entailing the sale of Banco Popular Espanol to Banco Santander.”
Such a solution appeared to be the preferred option for Banco Popular’s chief, Emilio Saracho, even though a second bank, BBVA, had also been mooted as a possible buyer.
For its part, the SRB said in a separate statement that it had “transferred all shares and capital instruments” of Banco Popular to Banco Santander.
“This means that Banco Popular will operate under normal business conditions as a solvent and liquid member of the Santander Group with immediate effect,” it said.
Banco Popular is Spain’s seventh-biggest bank. It is still struggling under the crushing weight of the “toxic assets” accumulated since the 2008 crisis, comprising real estate seized from owners unable to pay back their loans and mortgages.
Compelled to re-sell them at a loss, Banco Popular was forced to set aside 5.7 billion euros ($6.4 billion) in provisions in 2016, pushing it into a net loss of 3.5 billion euros for the year.
Banco Popular has seen its market capitalization drop by more than half in just one week on the Madrid stock exchange. On Tuesday, its shares had traded at as little as 0.32 euros apiece.
Banco Santander’s investors did not seem to be particularly happy about the announcement that the bank would take over Banco Popular. Santander shares plunged by more than two percent on the Madrid stock exchange on Wednesday to around 5.67 euros.
The overall market was showing a loss of around 0.9 percent.