Santander has purchased fellow Spanish lender Banco Popular for €1, after Brussels warned the bank was on the verge of collapse.
Banco Popular’s shares had lost more than half their value over the past week, as speculation mounted over the lender’s future driven by its liquidity problems.
The purchase, announced on Wednesday, means Santander will acquire 100 per cent of the struggling bank’s shares and debt. Santander also plans its own capital increase worth €7 billion to cover the absorption.
"This process has been triggered by the European Central Bank after seeing the unviable situation of the bank," said Spain's Fund for Orderly Bank Restructuring .
Popular’s lack of viability, it added, was due to “liquidity problems associated with the deterioration of its deposit base over recent months and the uncertainty about its own plans to face up to the possible deterioration of the bank’s balance sheet”.
The bank sustained losses of €3.5 billion for the past financial year.
Popular suffered a substantial deposit run in recent months, as reports of its difficulties circulated. Last month, bank chairman Emilio Saracho admitted the lender was in an "urgent" situation, telling local media: "We have liquidity until the end of this year. . . Is that urgent? Yes, because we have to take steps quickly. We've known that for months."
However, several potential buyers lost interest, leading up to Wednesday’s deal with Santander.
Economy minister Luis de Guindos welcomed the development, describing it as “a good way out for the lender, given the situation it had found itself in recent weeks, because this means maximum protection for depositors and the continuation of activity”.
He also contrasted the purchase with the financial crisis of 2012, when lender Bankia required a massive state bailout and Spain requested a €100 billion rescue for its banks from the EU, of which it used just under half.
Mr de Guindos said that “the current situation is very different from that of 2012, given the overall health of the financial industry and the Spanish economy in general”.
The Santander deal means Banco Popular avoids being the subject of the first bailout by the euro zone's Single Resolution Board, which was set up in 2015 to help failing banks without affecting public finances.
However, while the deposits appear to be safe, Banco Popular’s 300,000 shareholders will lose their investment.
Ahead of Wednesday’s sale, many branches of Banco Popular saw frantic scenes as shareholders and other clients demanded information about the bank’s situation.
On Tuesday, there were angry scenes at a branch of the bank in Marbella, where a group of shareholders demanded to be allowed to sell their investment.
Security guards had to intervene when bank employees said they needed authorisation to carry out the requests.
Santander said the absorption will make it Spain’s largest bank in terms of assets and lending. Executive chairman Ana Botín said the acquisition would strengthen her group’s diversification “at a time of improving economic conditions in both Spain and Portugal, and will allow us to continue to deliver for customers and shareholders on all our commitments”.