Santander buys Banco Popular for just one euro to avert its collapse

A branch of Popular next to Banco Santander in Barcelona.
A branch of Popular next to Banco Santander in Barcelona. / REUTERS
  • The move is the first test of new eurozone bank-bailout mechanism set up after the 2008 financial crisis and sees Popular’s shareholders lose all their money

Banco Popular, one of Spain’s biggest banks, has been sold to Banco Santander for one euro to avoid its collapse. The emergency measure was brokered by eurozone central bankers after a run on deposits in the beleaguered financial group and the risk of it running out of cash.

Santander will now increase its share capital by seven billion euros to shore up the finances of its new acquisition as well as paying for all the costs of the merger.

Banco Popular, known as one of the biggest lenders to small companies and the self-employed, has been suffering since the financial crisis of 2008 hit its accounts. Despite raising new capital twice, the 91-year-old bank went from profits of 1.3 billion euros in 2007 to a record loss of almost 3.5 billion euros in 2016. Its share price had plummeted and sources said that customers had withdrawn over 18 billion euros in the last ten days of its life, leaving it no money left to pay out.

The deal with Santander is a forced sale by the EU and is the first time that new European-wide measures have been adopted when a bank faces problems, to prevent huge bailout costs falling on the shoulders of taxpayers in individual countries. The eurozone’s new Single Resolution Mechanism was activated and other banks were invited to bid for Banco Popular, with Santander offering the best conditions.

Santander believes it can make 500 million euros in cost savings and that the deal will be profitable by 2020. Its shares fell 0.88 per cent.

Banco Popular shareholders and debtholders, some 300,000 in total, have lost all their money, while customers have had their deposits saved.