Popular ‘Refuses’ Bailout, Doesn’t Need More Capital Than Stated

Banco Popular (POP) Espanol SA said it will shun state aid under a European bailout of Spain’s banks, Chief Financial Officer Jacobo Gonzalez-Robatto said.

“We are refusing any money from the government at whatever the price,” Gonzalez-Robatto said on a webcast for analysts today. “We will do whatever is in our hands not to ask for any penny or any euro-cent.”

Popular, which says it expects as much as 2.4 billion euros ($2.95 billion) of profit through 2014, is among banks that must show in stress tests they don’t need state aid as part of the European Union’s 100 billion-euro bailout. Popular doesn’t plan to raise capital beyond a 700 million-euro issue of bonds mandatorily convertible into shares, part of the acquisition of Banco Pastor SA announced in October, Gonzalez-Robatto said.

Not everyone is convinced that Popular can avoid state aid. Accounting firms are preparing audits of lenders for September to identify which banks need funds as part of the bailout.

Popular still needs to set aside 4 billion euros of provisions for real estate assets by the middle of next year after setting aside 3.4 billion euros in the first half.

“If the number for the capital shortfall is small enough, it is possible then they might be able to cover the deficit themselves,” said Daragh Quinn, an analyst at Nomura International in Madrid. “There is, though, a very real risk that they will have to rely on government support in the end.”

Beats Expectations

The lender needs to raise 1.5 billion euros “through capital gains and a small rights, or whatever, capital increase,” Gonzalez-Robatto said on the call today. Diego Barron, head of investor relations at the bank, said in a phone interview that the “small rights issue” referred to the 700 million-euro exercise linked to Pastor, which is scheduled to occur by June 2013.

Net income fell to 75.4 million euros in the second quarter from 119.7 million euros a year earlier, the Madrid-based lender said today. Popular rose as much as 4.7 percent in Madrid trading after earnings beat the 64.8 million-euro average estimate of 12 analysts surveyed by Bloomberg. The shares were up 2.5 cents to 1.40 euros by 1:54 p.m.

Popular is seeking 2 billion euros from asset sales by the end of 2013 to withstand more than 7 billion euros of provisions ordered by the government to clean up its balance sheet. Bad loans as a proportion of total lending reached 6.98 percent in June from 6.35 percent in March and 5.58 percent a year ago, Popular said.

“Foreseeably there will be a greater deterioration of credit quality as a consequence of the economic situation and most particularly in the property development and construction sector,” the bank said in a statement.

Net interest income jumped to 743 million euros from 529.5 million euros a year earlier as revenue from commissions climbed 25 percent to 223.2 million euros, Popular said.

The bank’s core capital ratio under the European Banking Authority’s criteria reached 10.3 percent in June, exceeding the 9 percent required, Popular said. Popular completed its acquisition of Banco Pastor SA on July 5.

To contact the reporter on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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