The growing pile of bailed-out, newly crushed European banks
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Despite receiving some of the most generous public subsidies in recorded history, Europe’s financial sector continues to hemorrhage. In Italy, the total market value of Monte dei Paschi di Siena, the world’s oldest bank and Italy’s third largest, is a fraction over €500 million, as its shares hover just 23 European cents above zero.
In the EU’s largest economy, Germany, the country’s only G-SIB (Global Systemically Important Bank), Deutsche Bank, has seen its stock plummet close to 90% in the last 10 years,from €117 to €12.30. This year alone it’s down well over 40%.
Take a quick glance at many of Europe’s smaller big banks and things look even grimmer. Four of Europe’s 29 “biggest” banks now share the dubious distinction of being penny stocks: Spain’s Bankia (€0.79), Italy’s Monte dei Paschi (€0.23), the National Bank of Greece (€0.21) and Bank of Ireland (€0.20).
These banks all share one thing in common: they have all been — or in the case of MPS will probably soon be — bailed out with public money. Put simply, they are the ugliest zombies on the market, unable to do anything but groan, just waiting for someone to put them out of their misery.
And now there’s a new kid on the block: Spain’s Banco Popular, whose shares plunged through the €1 threshold on Monday and have since slid to €0.94, its lowest point since 1990.
In many ways, the stock’s free-fall is no less impressive than Deutsche’s or Monte dei Paschi’s. Popular’s shares were worth over €15 in 2007, at the height of Spain’s insane real estate bubble, when almost a million new homes were being built each year in a country whose population was barely budging. That was more than in Germany, France and the UK combined.
One of the biggest, most reckless lenders during that period was Banco Popular. In the intervening years many of Spain’s biggest banks, including Santander, BBVA and La Caixa, have gradually, quietly unloaded a large share of their most toxic real estate assets, much of them on to the international markets. But Popular has been caught napping. Either that or its assets are so noxious that no self-respecting investor will go near them at just about any price.
Even nine years after the crash of Spain’s real estate boom, 26% of Popular’s total loan portfolio is still concentrated in the real estate and construction sectors. At 12.6%, the bank boasts the highest bad debt ratio of any Spanish bank, which, let’s face it, is no mean feat. It is also the country’s worst performing bank, according to the ECB’s latest stress test.
Popular is planning to spin off its own bad bank early next year, with around €6 billion euros in toxic assets. The listing is a last-ditch attempt to clean up its books. The problem is that at this rate it may not even be around early next year [read… Next “Bad Bank” to IPO in Spain, after 2 Prior IPOs Imploded]
The last big intervention to save Popular was in early summer when the bank, with the hired help of some of the world’s biggest investment banks (Goldman, Barclays, Citi, Deutsche Bank, Morgan Stanley, HSBC, Credit Suisse, Société Génerale and Nomura), raised €2.5 billion in capital, its third since 2012. That was just months after the bank’s then CEO Francisco Gomez had breezily reported that the bank had a “very comfortable core capital level” and “one of the best” leverage ratios in the sector.
Now the banking group has a new CEO — Pedro Larena, a former head of Deutsche Bank PBC International — and a market cap of €3.9 billion, roughly €2 billion less than the day after the capital expansion. In other words, shareholders who unwisely bought in during the last capital expansion are down over 30%. So far this year Popular’s shares have fallen 65%, making it the worst performer on Spain’s benchmark index and one of the worst performing banking stocks in Europe.
Even before the latest bloodbath, some of the bank’s biggest shareholders were already feeling the pinch. According to the Spanish financial news site El Confidencial, they include Unión Europea de Inversiones (UEI), an investment vehicle that represents the interests of scions of Spanish business closely linked to Opus Dei and which controls 3% of Popular’s shares.
Things have gotten so tight of late that UEI has reportedly had to request €160 million worth of participative loans — loans made by multiple lenders to a single borrower.– to “rebalance its liquidity and refinance its elevated levels of debt.” That freshly minted debt was provided by Spain’s biggest bank, Banco Santanter (€45 million), its fifth biggest bank, Banc de Sabadell (€56 million) and its sixth biggest bank… yes, that’s right: Banco Popular (€60 million).
If there’s any doubt as to how Spain’s new coalition government might respond to the threat of a collapsing Banco Popular, you can rest assured. As El Pais reported in 2015, Banco Popular has been funding the political campaigns of just about every major political party in Spain, including the governing People’s Party and Cuidadanos (Citizens), for decades. According to one of the parties interviewed, the great thing about Popular is that it “doesn’t set so many conditions.” Which just about says it all. By Don Quijones, Raging Bull-Shit.
The “Doom Loop” resurges. Read… Italy’s Banking System on Verge of Nervous Breakdown