Banco Popular’s Very Delicate Meeting With European Regulator

Banco Popular will meet ECBBanco Popular will meet ECB

Banco Popular’s management team, chairman Emilio Saracho and his CEO,  Ignacio Sánchez Asiaín, will meet with the ECB tomorrow, according the economic press. We should remember that the Spanish lender is updating the valuation of its property assets to find out what the current provisions’ deficit is, while also analying the possibility of some sort of corporate transaction or a capital hike. The chairman has acknowledged that the bank’s situation is complicated, but he has reiterated that it has net positive assets. The meeting is taking place at a very delicate time for Banco Popular.

It doesn’t seem as if there is any urgency behind the meeting, but rather that it is part of a routine monitoring process. As a matter of fact, Bankinter analysts understand that “the aim of the meeting is to analyse the current situation and the bank’s strategic options“. That said, “Popular’s management team will look for support from the European regulator, defending the lender’s solvency, as well as the need to work on its sale to another bank,” Link Securities analysts note.

With regard to this process, the investment bank advising Popular has given the two interested banks, Santander and Bankia, access to 140 random samples of credit transactions and to the 80 most complex files. Furthermore, the interested parties don’t know the details of the bank’s capital deficit, which could be around 1.5-2 billion euros. There is also uncertainty over the cost of any eventual lawsuits related to possible shareholder claims originating from the last capital hike.

Finally, economic press says there is speculation in the market that Popular could be intervened and that between all the instruments where Popular could absorb losses (CET1, AT1 and Tier2) the total is 8 billion euros. The newspaper Cinco Días highlights that the plunge in the bank’s share price has been sparked by the fear that Popular won’t pay the next coupon on its CoCos due July 10, although it has margin to pay it and intends to do so. But the ECB may advise against it. The sharp decline in the bank’s share price has left it at 0,2x book value.

Popular’s communication policy, which is one of not being clear about its situation and future strategy, has generated all sorts of rumours about its solvency and its viability as an independent bank. In the opinion of Link Securities:

Popular needs to clarify its strategy as soon as possible and perhaps speed up its sale process to eliminate the uncertainty hanging over the bank and put an end to the damaging rumours, both for the sake of its shareholders and its depositors. Meanwhile, we think that trading in Popular shares is just for the professionals. So we recommend private investors stay on the sidelines.