Spain's biggest bank Santander today said it would buy struggling rival Banco Popular for a nominal one euro after European authorities determined the lender was on the verge of insolvency.
Santander will carry out a capital increase of around €7 billion to cover the capital and provisions required to boost Popular's finances.
The move, which followed a declaration by the European Central Bank that Banco Popular was set to be wound down, marks the first such use of a regime to deal with failing banks adopted after the financial crisis.
It followed a withdrawal of deposits, which compounded the bank's funding problems and ultimately triggered its sale, which will see Banco Popular shareholders and some of the bank's creditors suffer losses.
"The decision taken today safeguards the depositors and critical functions of Banco Popular," said Elke König, Chair of the Single Resolution Board, an EU agency that winds down stricken banks.
The ECB had blamed what it called a "significant deterioration of the liquidity situation of the bank in recent days" in concluding that it "would have, in the near future, been unable to pay its debts or other liabilities."
Spanish Economy Minister Luis de Guindos said that Santander's takeover was a good outcome for Popular given its situation in recent weeks and it would have no impact on public resources. It implied no contagion to other banks, he said.
Santander Chairwoman Ana Botin said that the combination of the banks would strengthen the group's geographic reach as the economy in Spain and Portugal improved.
"We welcome Banco Popular customers," she said.
Struggling under the weight of €37 billion of non-performing property assets left over from Spain's financial crisis, Popular had seen its share price slump by more than a half after supervisors at the ECB warned Popular faced being wound down. That prompted the move by Santander.
Santander, which did not absorb any underperforming lenders during Spain's banking crisis, said the acquisition of Popular would accelerate growth and profit generation from 2019 onwards.
It said it would set aside €7.9 billion to cover for non-performing assets after the acquisition.
Popular's non-performing loan ratio is around three times above the average of its Spanish rivals.
Popular has long had one of the strongest small and medium sized company loan portfolios among Spanish lenders, and Santander said it would now lead the lucrative market in Spain, with a 25% share.