The Phaserl


Hit by Run on Deposits, Banco Popular Denies it’s Looking for Rushed Takeover to Avert Collapse

by Don Quijones, Wolf Street:

Spain’s 6th largest bank: “We have liquidity until the end of the year.”

In the world of banking, confidence and trust are a precious currency. The moment a bank loses them, things tend to spiral down quickly. Spain’s sixth biggest and desperately troubled bank, Banco Popular, appears to be well along the process of losing the confidence of its customers, and with it their deposits. Last year the bank lost 6.5% of its deposit base. But now, according to a report by the financial daily El Confidencial, the deposit outflow is swelling from a trickle into a deluge.

The bank responded by making its deposits more attractive. Its deposit rates now range between 0.75% and 4%. With the eurobor at 0%, offering such enticing rates will obliterate Popular’s wafer-thin margins.

Yet the outflow only accelerated. Last week, when the bank reported a quarterly loss of €139 million, it disclosed that deposits had dropped an additional 5%, to €78.8 billion, in the January-March period.

But then came a fresh bombshell yesterday afternoon. El Confidencial reported that the outflow of deposits by private and institutional depositors has reached such proportions that the bank was on the verge of default. Its senior management had contacted the CEOs of Spain’s five biggest banks, Santander, BBVA, Caixabank, Banc de Sabadell and majority publicly owned Bankia, to discuss the urgent need for a quickfire takeover. The report stated that Popular’s new chairman, Emilio Saracho, a former vice-president of JP Morgan Chase, had hired JP Morgan, Lazard and Société Générale to find a buyer.

The bank’s shares plunged 6.6% on Thursday and another 5% on Friday to €0.75.

Popular issued an immediate denial that it was on the verge of default. Its strategy has not changed and it is still exploring a series of options, including a possible capital increase, it claimed.

Today a number of other Spanish media outlets have confirmed certain aspects of El Confidencial’s assertions: Saracho has indeed been in talks with Spain’s biggest banks regarding a possible takeover and has also hired investment banks, including JP Morgan, to oversee the process, and that it was urgent, but not quite as urgent as El Confidencial’s article seemed to suggest.

El Confidencial reported the denial this way: “The urgency to get the sale done by June was due to the fact the bank only has ‘liquidity until December 31.’”

Saracho told El Confidencial that the bank’s situation was “urgent,” but he wanted to point out that the deposits of private and business depositors are not in danger in any case. “We have liquidity until the end of the year. Is this urgent? Yes, because we have to take action quickly. We’ve known that for months.”

El Pais, in reporting the denial, added this, citing “market sources”:

“[Saracho] has said he is calculating how much capital he needs to cover Popular’s provisions, but time continues to drag on and the messages he conveys to the market are far from clear. Saracho has been president since January, but says he needs until the summer to work out the numbers. It’s too long for an entity that’s in the eye of the hurricane.” The sources also find it contradictory that the president is holding talks with competitors “if he does not know the true size of the hole on the bank’s balance sheet.”

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