Spain’s 6th largest bank: “We have liquidity until the end of the year.”
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
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.”
For its part, Spain’s Ministry of Economy has tried to sooth depositors’ nerves by assuring them that the Spanish financial system is “credible” and will not be affected by whatever is happening to Banco Popular.
But neither the bank’s customers nor its investors have much confidence left in what the bank’s management say or do, having already been deceived on a number of occasions.
In April last year, then-CEO Francisco Gomez breezily reported that the bank had a very comfortable core capital level above the regulatory minimum and “one of the best” leverage ratios in the sector. Shares soared on the news. A month later, Popular announced it was urgently seeking to raise €2.5 billion in capital in order to shore up its finances. The shares crumbled by over 30% in three days.
Then, in April this year, an internal audit by PwC revealed that the €3.5 billion loss Popular registered in 2016 — its biggest annual loss ever — had been understated and was actually some €600 million larger. Some investors are now suing the bank in the U.S. for being intentionally misled.
By now Banco Popular’s true value is almost certainly in negative territory, its balance sheet still burdened with over €30 billion of toxic real-estate-related assets that nobody wants to touch. If there is a prospective buyer out there, it won’t want the bad stuff; it will just want the good stuff. One of the ways this could happen is if Popular’s balance sheet is given a thorough spring cleaning, paid for, of course, with government funds.
It’s a sad demise for an institution that for years had been conservatively run, with focus on lending to small businesses. But that all changed in 2004 when new management, led by the recently deposed Chairman Ángel Ron, pushed Popular into risky real estate investments just before Spain’s property bubble burst. They then took way too long to clean up afterward – and it’s still not cleaned up.
Popular’s managers have since walked away with millions in their back pockets, including a $24 million pension payout for Ron. He has even threatened to sue the bank over his lack of severance pay. Meanwhile, the multi-billion euro mess he and his cohorts leave behind will eventually be cleaned up by Spain’s long-suffering taxpayers. By Don Quijones.
And there’s a new remedy in Spain: Taxpayer-funded subsidies to benefit banks, real estate agencies, construction companies, PE firms, and landlords. Read… Spain’s Government Presses Property-Bubble Rewind Button
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Greece, Venezuela, Puerto Rico, some American cities; and maybe Spain, Italy, Canada, OPEC, Mexico and Australia will soon be ringing bells for the red kettle pots? No wonder prudent people are trying to collect and store up some nuts under their mattress.
New Zealand is no different they have very high house prices with wages lower than Australia .Alot of NZer fled NZ to escape the low wages and now the high living cost.
NZ is very different.
There is no government backed deposit insurance.
The vast majority of the banks are 100% foreign owned.
Watch them get nationalised for $1, after they fail, and try to throw the local population, out of their homes.
S.O.S. to the ECB….SEND MORE HELP!!!!!
We haven’t sunk yet – The Titanic (radio message after hitting an iceberg).
Puerto Rico was one of the big markets for Banco Popular. With all the migration out of the island back to the states this is bound to affect the deposit base. Their deposit base on the island is probably evaporating with the economic disaster ongoing there, no jobs, no money.
Different bank, Petunia.
Is Santander in your article the same bank as the one operating in the states?
Yep, pretty much. The US bank/subprime dealer is a subsidiary of the Spanish giant.
Yes, and part of it was sold in an IPO a couple of years ago. The shares have lost half their value since. Santander Consumer USA is one of the big auto subprime lenders in the US.
Anyone migrating to the states should have an immediate psychological examination prior to departure and I never thought I would think that
With the current tax system that would apply to citizens of first world nations.
those in the 3rd world or in violently oppressive states would still be better off inn the US its why they keep trying to go there the US is not yet Venezuela.
“I’m still OK” – man falling past the eighth floor on the way down from the 112th…
Sheeesh! How could this happen? Spain has done such a great job creating well governed former colonies!
Poetic justice or kharma!
Greg How about the karma for 911 That’s gonna be a real doozie At least the Spanish didn’t murder their own people
You should really check your history.
Ever heard of Francisco Franco? He was Spanish President in the 1970s and responsible for the deaths of many many Spaniards as it happens.
Far more than the Americans died on September 11.
Far far more died in the Spanish Civil War. Of course the roots of September 11 go back to the US decision to take the advice of Brzezinski, President Carter’s National Security Adviser in the 1970s to arm the mujahideen in the 1970s in Afghanistan and from there led to OBL obviously.
Yep, both of those stories point to the 1970s and yet somehow you think more Americans died on September 11 than in the Spanish Civil War!
Really amazing viewpoint you have Fred!
What you mean people aren’t dumb enough to trust carefully crafted politically correct lingo anymore? Blasphemers, all of them, call in the witch hunters! Purge em’ all!
He who panics first, panics best.
If Merkel, or a centre conservative coalition remains in power in Germany.
Thing’s may get very ugly in Franco Club-med banking.
As the Dirty little Mafiosi at the ECB will not be able to clandestinely and illegally continue to bail out Franco Club-Med banking, with German money..
German voters and taxpayers are still meekly bending over for their globalist masters and their water carrier, Frau Merkel.
A “Deliverance”-style reaming awaits these fools when they find themselves on the hook for the banksters’ massive gambling losses and bad derivatives bets. Then their squealing is going to reverberate throughout the galaxy.
Wrong.
The spaniards and other south europeans are the ones who have bailed out the german banks. With our austerity we are paying for your bad gambles.
The powers that be seldom, if ever, care about the fate of the “peasants” they rule. But if the German rulers wanted to take control of Southern Europe, baling out their banks is a good way to do it.
“The spaniards and other south europeans are the ones who have bailed out the german banks. With our austerity we are paying for your bad gambles.”
Wrong
With your Austerity you are paying for the acts of your corrupt socialist Club-MedPoliticians and Bankers. Blaming Germany and its bank’s for your Club-Med lies and problems, is pathetic.
The Bank’s didn’t make any bad gamble’s loaning to Club-Med.
They simply were foolish enough to believe club-med Bankers and poloticians lies.
Which is why nobody wants to aid Club-Med Banks now. When they really need it.
A huge problem for you, of your own Corrupt Club-Med making.
The Northern bankers now know, the publicised figures only show less than half of the real problem’s. So they are not interested in helping the Corrupt liars in Club-Med.
If Greece didn’t lie, it wouldn’t have half as many problems today.
And the same goes for all the Corrupt Club-Med Politicians and Bankers.
Greek’s have enough money to stabiles their banks and clear their National debts.
That Money is all in Northern Euro Zone banks outside Greece. The rest of the citizens in Club-Med seem to be quietly doing the same thing.
Acts of personal survival, causing national Financial collapse.
Perhaps if this situation is allowed to run its course, it will force Fiscal Union in the Euro Zone.
Once all the citizens of club med have their funds in the stable Northern bank’s. As then the Northern banks will pick up the southern ones for a Dollar each like. Jamie Dimon does.
Watch the Target II # something will have to be done about that soon.
Time for Club-Med to surrender and complete Fiscal and ever closer union, or get the F out of the Euro, and the EU.
Which they don’t want to do, as just like Greece, they love all those EU freebies, they get every week.
Brexit is going to change that as now the north is the only major contributor to the EU budget and Germany is not going to pick up any of Englands tab, you have all been living on.
Deposits got nothing to do with it, it’s all about the Abengoa
http://www.eleconomista.es/banca-finanzas/noticias/8334119/05/17/Popular-ya-es-el-primer-accionista-de-Abengoa-tras-la-venta-de-Credit-Agricole.html
I have feeling a lot of designated bad banks will be Abengoa bag holders.
Wrong. Deposits are liabilities on a bank balance sheet. The linked investment in Abengoa is an asset on the balance sheet. Completely different animals. Deposit flight is deadly for a bank (“run on bank”), and a new problem for Popular. Bad assets is another problem for banks, and an old problem for Popular.
How is Spains Target II looking??
Is this deposit flight inside Spain. Much of it to matresses, or from Spain.