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Shares in Banco Popular took another dive on Monday, after the Spanish lender said it was looking to raise more capital less than a year after investors injected €2.5bn into the struggling group.
“The general diagnosis is clear: we need a capital increase to move forward,” Emilio Saracho, the bank’s new chairman, told a shareholder meeting in Madrid.
Investors and analysts have long believed that Popular needs fresh capital to survive, but Mr Saracho’s statement sent the bank’s shares down more than 9 per cent in afternoon trading on Monday.
The chairman gave no estimate of the size or timing of a future increase, but most analysts give a range of €3bn-€4bn.
Popular, one of the worst-performing banks in Europe, has lost more than 90 per cent its market value over the past five years alone. In February, the bank unveiled a €3.5bn annual loss, after it was forced to once again ramp up provisions for its toxic loan portfolio. Popular’s long-suffering shareholders were handed a fresh blow last week, when the bank revealed that an internal audit had uncovered another unexpected shortfall in provisions.
Mr Saracho, who took over as chairman earlier this year, acknowledged that the bank had to “act quickly and decisively” to restore confidence. He also raised the possibility of selling Popular to a rival bank, but stressed that such a sale was only one among several options.
“We will do whatever generates the most value for shareholders,” he said.
Daragh Quinn, a banking analyst at Keefe, Bruyette & Woods, said Popular’s new management faced a difficult choice either way. “We do not expect the other banks to rush in with bids that would provide much support to the current share price,” he said in a note on Monday.
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Should the bank decide to raise fresh equity, investors would likely want to see “best-in-class” coverage and capital ratios, which would imply a capital raising of about €4bn. The bank’s current market capitalisation is €3.4bn.
Popular pushed through its last capital increase only last June, raising €2.5bn in the process. It also raised capital in 2002, at the height of Spain’s banking crisis. In the years since, the Spanish banking sector has largely recovered, with bad loan ratios and loan loss provisions plummeting across the industry — with the notable exception of Popular.
Mr Saracho was at pains to assure shareholders that the bank had a future despite the recent string of setbacks. “Under no circumstances can I imagine the disappearance of Popular,” he said.