Spain’s Most Italian Bank Still “Solvent,” Claims Finance Minister

It just doesn’t let up with this bank.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

The future continues to look bleak for Spain’s most Italian bank, Banco Popular, which ironically once bore the slogan “Our Past and Our Present Guarantee Our Future.” Things have gotten so bad that when the country’s Minister of Finance Luis de Guindos was asked by a reporter today about the bank’s state of health, he responded: “the bank is solvent.” Which is kind of like a doctor saying, “the patient is alive.” Not exactly reassuring.

Popular just had its worst day of 2017 after seeing its penny stock tumble over 10%, from €0.90 to €0.82. This is a bank that was once ranked among the world’s most profitable by ratings company IBCA and which not so long ago boasted a share price of over €15. That was before its management decided to bet the farm on risky real estate investments at the height of an insane property bubble and then took too long to clean up afterward.

Even now, nine years after the the bubble’s crash, roughly a quarter of Popular’s total loan portfolio is still concentrated in the real estate and construction sectors. In November last year. it had over €30 billion worth of bad loans and non-performing assets on its books, which it continues to struggle to offload without incurring fatal losses. It was also the country’s worst performing bank in the ECB’s last stress test.

In 2016, Banco Popular registered annual losses of almost €3.5 billion after provisioning part of its giant stock of non-performing loans. But according to the results of a new internal audit published today, that was optimistic: the banks’ actual losses were €600 million larger. Hence today’s fresh rout.

Popular didn’t provision enough last year for its “delinquent loans, risks and associated guarantees,” says the auditor, PwC. In response, the bank announced that while it does not see the need to reformulate last year’s accounts, it will make sure that this year’s results reflect the difference.

More damning still, the auditor has unearthed evidence that as part of that €2.5 billion rights issue — its third effort since the crisis to raise capital — Popular’s management offered low-interest loans to clients in order for them to buy the bank’s share offering.

This latest accusation reinforces allegations made at the time by the Spanish investment group Blackbird that the bank was offering customers dirt-cheap loans or refinancing deals, at an interest rate of just 2.5%, as long as they used some of the funds to purchase the bank’s newly issued shares from the bank. From the auditor’s report:

“Certain loans to customers that could have been used to purchase shares in the capital increase carried out in May 2016, the amount of which, if verified, should be deducted in accordance with current regulations of the bank’s regulatory capital, without Any effect on net income or equity.”

Popular’s new president Emilio Saracho, formerly of JP Morgan Chase, estimates that the purchase of at least 205 million shares from a sample of 426 million was financed in this way. This is not just unethical, it’s illegal. Banks cannot lend customers money in order for them to buy the banks’ own shares when it issues them to raise capital. For the moment, the bank’s only punishment is that it will have to deduct the money it lent those customers from its capital base.

As for the bank’s long-suffering investors, they are once again beginning to fret about what might be lurking around the next corner. Within hours of releasing the results of the internal audit, Popular’s management announced that its CEO, Pedro Lorena, formerly of Deutsche Bank, had resigned after just six months in the post — for “personal reasons.”

In the meantime, hedge funds in Connecticut and the City of London, scenting blood, are increasing their shorts against the stock. Combined they now hold 10.7% of the bank’s total capital, eclipsing the total holdings of the bank’s biggest shareholder, Sindicatura de Accionistas, which represents some 5,000 investors.

Another big investor, Unión Europea de Inversiones, was itself on the verge of bankruptcy at the beginning of this year as a result of the constantly plunging value of its holdings. Last week it was forced to cut all ties with Banco Popular following the launch of an investigation into its irregular financing by Spanish market regulators. It turns out that one of its biggest (and most generous) creditors was…  Banco Popular.

In order to stay alive this long, Spain’s sixth biggest bank has repeatedly broken one of the cardinal rules of fiduciary practice: do not finance your own investors. It has also unleashed a string of capital expansions, drastically diluting the holdings of its shareholders. Yet the boat continues to leak. Barring state intervention, the only remaining hope it had of salvation was to spin off €6 billion worth of dodgy assets into a separate investment vehicle optimistically dubbed Sunrise that was to be floated on the stock exchange. That was its Plan Z. And according to its new president, it’s dead.

But apparently a miracle may still happen: Greek property magnate George Logothetis has expressed an interest in buying up some of the toxic assets off Popular’s balance sheets at a big discount. Or else it could merge with a bigger bank. It would certainly have the ECB’s blessing, which would like nothing more than to see bigger banks in Europe. There are plenty of suitors including Spain’s two alpha lenders, Santander and BBVA, but none of them would want to touch the billions of euros of toxic assets festering on Popular’s books. By Don Quijones.

How many banks are insolvent in Italy? Turns out, a lot! But elections are coming up. Read…  Here’s Why Italy’s Banking Crisis Has Gone Off the Radar

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  17 comments for “Spain’s Most Italian Bank Still “Solvent,” Claims Finance Minister

  1. chip javert says:

    Yea. Bigger banks in Europe. That’s the solution.

    If we’ve conclusively demonstrated we don’t have the ethics or management horses to run little banks, let’s give the same guys BIGGER banks.

  2. Mike says:

    The situation in the EU illustrates what will happen when the TBTF banks need another bailout…Soon. Dodd Frank does not prevent such taxpayer or covert bankster money printing cartel (called the “Fed” because that name confuses taxpayers) bailout… It guarantees them. Just as pointed out able here, legislatures and regulators will bail out the banksters in the US like in the EU… Or the thousands of their depositors (I.e., voters that can punish the regulators or legislstors, lose their life savings. It is as if the bankster cartel and banksters held your son, daughter, grandma, etc. Hostage. If you did not agree to bail them out from the consesquences of their corrupt mistakes, they suffer the consequences too. Like in Italy, where this brilliant, corrupt con game will result in the bankrupt Italian government bailing out even banksters in banks not truly systemically important, in the US the repeal of the Glass Steagal laws and related laws means banksters have crafted a scheme to ensure ALL their banks get bailed out of upcoming disasters directly or indirectly by the US taxpayers. Tails means banksters win and if it falls heads then you lose… NOT banksters and their happy, bribable government toadies.

  3. Hkan says:

    Concrete advice to protect personal assets would be appreciated.

    Since I dont know “safe heaven” investments, we buy physical gold. Wise or not? Future will tell.

    Europe seem to run out of time….so good advise is worth its weight in [ ? ].

    • Gershon says:

      With Keynesian fraudsters and “former” Goldmanites at the Fed in charge of our money issuance and monetary policies, and the fools on Capital Hill piling more trillions onto the already unpayable national debt, the wise and prudent will prepare for Weimar 2.0 and a dollar collapse and brace for impact.

      • MD says:

        They’re not ‘Keynesians’. Keynes’ idea was that you save in good times to spend in the bad, to boost the economy – perfectly sensible.

        And there’s absolutely none of that going on…all there is is a debt frenzy, trillions in speculative cash sloshing around the world looking for more unneeded profit, and tax cuts for the wealthy and corporations (so no way to save for a rainy day).

        But people now seem to think that Keynes’ mantra was ‘tax and spend’ which was not the case.

    • Gershon says:

      Read Adam Fergusson’s “When Money Dies” for a preview of coming attractions once the Fed’s deranged money-printing catches up with the dollar. It is not going to be pretty.

      Remember, in a time of universal fraud, possession is 9/10s of the law. For the 99% who will be the victims of the Fed’s banister-enriching scams and rackets, physical precious metals and other tangible assets and essential supplies and barter items that you can buy and hold before the Fed’s financial house of cards comes crashing down will be essential to riding out the coming storm.

  4. Gershon says:

    When “extend and pretend” finally runs out of road, the collapse of the central banker Ponzi markets and asset bubbles under the weight of their own fraud, mark-to-fantasy valuations, and artifice is going to be epic.

  5. Mel says:

    So what happened? My impression of Italian banks was that they were lending small and locally, and my Small Is Beautiful religion says that that’s a good thing. Is there no actual profit to be made in Italy that can be split with lenders? Did the banks see less profit than they wanted and set out to invent some? Was it liars’ loans and fraud? Was it the Euros getting sucked out of the south? What?

  6. chip Javert says:

    Southern Europeans consider repaying bank loans to be “optional”.

    • Hiho says:

      Northen europeans, by the way, have defaulted on their sovereign debts much more mant times than southern countries.

      Your comment is just bullshit. The myth of the industrious nordic saver and the southern who spends all his money in parties is just that, a myth.

      • chip Javert says:


        Well, even if that’s accurate (and I’m not sure about that), we’re talking current Italian Bank problems, and a major contributor is Southern Europeans consider repaying bank loans to be “optional”.

        Whether or not you consider it bullshit doesn’t change the facts.

        The rest of your defensive emoting was about things I didn’t even say.

      • chip javert says:


        I had nothing to do for 5 minutes, so I decided to research your claim:

        Since 1800 (217 years), northern European countries had 11 external sovereign defaults (16 if including 5 from Russia), and southern European countries have had 25 defaults.



        • HIHO says:

          Since 1800? Of course then. These 6 defaults from the extinct spanish empire are bound to distort the statistics. Focus on the XX century and you will have another picture. Not to mention that the debt jubilee that Germany enjoyed in 1953 (which allowed the so called german miracle) is missing in this list. And Poland 1981? Before throwing the list you should have noticed that the list is not extensive nor accurate.

          However, you are right, sovereign debt was not the point. I assume you were talking about household debt. Be that as it may, why on the earth do you assume that we (I’m spanish) consider repaying debts as optional? I mean.. wtf? seriously? we have one of the worst foreclosure laws around. It’s either repaying your debt or becoming homeless (and still be left holding your debt, as there is no such a thing as debt relief once you lose your house).

          You are just repeating the same old cliché, without knowing the reality.

  7. Maximus Minimus says:

    How does this banking crisis effect the Spanish housing market? Were loans financed by banks in their domestic markets e.g. British, or by Spanish banks?

    • HIHO says:

      It’s the other way around Maximus. The housing market has had a huge effect on spanish banks. They fueled the bubble with complete reckless loans and when it bursted, they found themselves with thousands of toxic mortgages and a huge stock of foreclosured properties that nobody could afford to buy. Since the big crash they have been reluctant to issue new loans (even to solvent people), which has kept the prices relatively down.

      Now it seems that big real state investors looking for properties to rent and also to reap quick capital gains have filled the void. Prices are being pushed up once again and the banks have smelled the blood and are fueling really big big bubbles in cities like Barcelona.

      So well, yeah, that’s how I see the current situation here in Spain. It seems that we haven’t learned the lesson. So there we go, the boom and burst cycle keeps going and each time more and more people is left behind.

  8. Peter Mott says:

    The Financial Times (FT) reports that 5 executives from Novacaixagalicia bank have been jailed for two years. The losses were billions though.

    The FT is very orthodox and a long article based on Spain’s GDP finally returning to 2008 levels says the sun is shining again in Spain, its boom time again. But this time soundly based. Internal deflation has worked and apart from the 18.9% unemployed everything is fine. But, hey, “You can’t make an omlette without breaking eggs”. The present piece paints a more fragile picture, I think.

    The link for jail is (but paywall). The long article is

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