Spain's Banco Popular set to raise more capital, merger possible

MADRID (Reuters) - Spain’s struggling Banco Popular is looking at a another capital hike to clean up a balance sheet weighed down by billions of euros in toxic assets and would consider a merger deal, its new chairman said on Monday.

Speaking publicly for the first time since he took over, Chairman Emilio Saracho sought to draw a line under the management of his predecessor, Angel Ron, who was ousted by shareholders last December.

On Monday afternoon, he named a new chief executive, Ignacio Sanchez-Asiain, a senior banker who worked at Spain’s second-biggest lender BBVA, in the third leadership shake-up since last July.

Saracho said Popular likely needed more capital after raising 2.5 billion euros ($2.6 billion) last year, and would not rule out a merger as the solution to coping with its 36 billion euros of non-performing real estate assets.

Higher than expected charges on these loans have eroded the bank’s capital position, prompting 3.5 billion euros in losses for last year and fuelling talk it could be a takeover target.

“Under the right conditions, we could go to the market and ask investors for additional capital, or, eventually, we could participate in a round of consolidation,” Saracho said.

Part of Popular’s value came from its independence, Saracho said, but that did not mean the bank would not consider a deal that recognized the value of its brand.

Saracho’s comments drove Popular’s shares to a record low, closing down 9.6 percent. The shares are the worst performers on the European STOXX banking index over the past year, falling almost 60 percent against a 30 percent rise in the index.


Saracho, a former JPMorgan vice-president, said Popular would work on selling off non-strategic holdings and was in no position to pay shareholders dividends due to its shortage of capital.

Analysts said these non-strategic assets included its Wizink credit card business and Totalbank franchise in the United States.

Under Ron, Popular was planning to hive off 6 billion euros of its property assets into a separate division to help reduce its non-performing real estate portfolio by 15 billion by 2018.

Saracho did not mention the plan directly, but said he did not like “complex structures” to generate capital and the lender would continue to work on selling off real estate assets.

Popular’s problems mounted last week when it said it would revise its 2016 results and sources said it might book additional losses of around 240 million euros as a result of an internal audit.

Small investors voiced their anger about the accounting corrections and some demanded an investigation. “The solution is ... to clarify what has happened,” one of them, Maria Flora Ruiz Nunez, said at the event.

Board secretary Francisco Aparicio Valls said the changes to accounts were due to technicalities and were not intended to hide anything.

($1 = 0.9454 euros)

Writing by Angus Berwick; Editing by Julien Toyer and Mark Potter