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.