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2017-06-15 08:54:55
As European bank crises go, this was an orderly one
EVEN a bank failure can be presented as a triumph. This week Banco Popular, a big Spanish lender, endured a run. Depositors were said to be withdrawing 2bn ($2.2bn) a day. The bank lost half its stockmarket value in four days, as a self-imposed deadline to find a saviour loomed. On June 6th, it was declared by the Single Resolution Board (SRB), an independent agency set up by the European Commission in 2015 and charged with winding down banks, to be failing or likely to fail . The next morning, Santander, Spain s biggest bank, announced its purchase for the symbolic sum of 1 ($1.10). It is to raise 7bn in capital to help absorb Popular s property-related losses.
Spain s government, the European Commission and Santander all cheered the outcome as a model European response to a bank crisis. Shareholders and junior bondholders in Popular have been wiped out. Spanish ministers pointed out that taxpayers would not have to pay for a rescue of the sort arranged for Bankia, a giant savings bank nearing collapse, when Spain needed a banking bail-out in 2012. Ana Bot n, Santander s boss, declared the deal good for Spain, for Europe, for Popular s 4.4m customers and for her shareholders. Santander s market leadership in Spain and Portugal will be strengthened.
The cheerleaders do have a point. Compared with previous banking disasters, this one has been handled, in Ms Bot n s words, with agility and speed . But Popular s demise is also a reminder of Europe s residual banking woes (see article).
In Spain these go back to uncontrolled lending that financed a construction bubble which burst in 2008. Popular, a bank whose executives historically had close ties to the Opus Dei movement in the Catholic church, tried to weather the crisis by turning to shareholders, not the government. In 2016 it completed its third capital increase since 2012. The strategy didn t work. Popular s 300,000 or so shareholders have now had the value of their investment reduced to zero. So have investors in some 2bn of bonds, including contingent convertible instruments, introduced after the crisis, that are turned into equity when things go wrong.
The terms of the Santander deal are likely to be challenged in court. Some shareholders called it an expropriation. Investors will also ask why supervisors with supposedly beefed-up powers failed to step in earlier. Popular underwent various European banking stress tests and its successive capital increases were deemed sufficient by regulators. As recently as April, Spain s economy minister, Luis de Guindos, said it had no problems of liquidity .
By then Popular had posted a record loss of 3.5bn for 2016. It was smaller than Bankia and never posed a systemic risk. That helped the government shun a bail-out. But Spain s opposition parties called on Mr de Guindos to explain Popular s demise in parliament. What riles people , said Miguel ngel Revilla, head of the regional government in Cantabria, is that successive capital increases were authorised and various bank heads went home weighed down by millions of euros in pension and compensation packages.
Correction (June 12th): This piece has been amended to correct our description of the Single Resolution Board. It is an independent agency set up by the European Commission and not, as we claimed, by the European Central Bank. Sorry.