Banco Popular Espanol SA, the Spanish bank that’s trying to raise as much as 2.5 billion euros ($3.2 billion) in a share sale, wants its customers to buy as much as 60 percent of the stock on offer.
Spain’s sixth-biggest bank will seek to sell the shares to retail and corporate customers, according to a spokesman who asked not to be identified in line with company policy.
The lender said on Oct. 1 that it would sell shares and suspend its dividend as the bank tries to avoid having to take state aid to cover a 3.22 billion-euro capital shortfall revealed in a stress test. Popular posted a 23 percent drop in third-quarter profit today on provisions to cover bad loans.
“They need to find another pool of domestic capital to pitch to, and the option they have at the end of the line is their retail clients,” Simon Maughan, a financial industry strategist at Olivetree Securities in London, said in a phone interview. “They have to hope it works.”
Popular is offering the stock to existing shareholders after pledging to return to profit and restore its dividend next year. It has said its ability to generate operating income will set it on course to earn 1.4 billion euros in 2014.
The sale may go ahead at a discount of at least 40 percent to the share price at the time, Chief Financial Officer Jacobo Gonzalez-Robatto said in an Oct. 1 news conference. It’s unlikely the bank will restore dividends until the second half of 2013, he told reporters today.
“Normally our shareholders are those that trust in the bank for one reason and logically we are going to run campaigns so that they subscribe to the sale,” Gonzalez-Robatto said at a news conference in Madrid. “The bank has the enormous goodwill of its customers.”
The task of lining up underwriters for the sale is going “extremely well,” Gonzalez-Robatto said.
Popular is also pressing ahead with planned asset sales and will complete some of them this year, he said. The “most important” transaction, the sale of part of its bank-cards business to a joint venture partner, will take place in the first quarter of next year, he said.
The bank will fix terms for the sale when shareholders meet to approve it on Nov. 10, and plans to conclude the offering by Dec. 6, Gonzalez-Robatto said on a web cast for analysts today.
Popular rose 0.6 percent to 1.261 euros at 3:37 p.m. in Madrid. The stock has slumped 26 percent since the day before the share-sale announcement and is down 64 percent this year, valuing the lender at 2.7 billion euros. That’s 8 percent more than the amount it’s trying to raise with its offering of stock.
Popular is employing a strategy used by other Spanish banks seeking capital. Bankia SA, which was taken over by the government in May, tapped about 347,000 individual investors to fill orders for an initial public offering in July last year. Bankia stock has fallen more than 70 percent since then.
Popular said on Oct. 23 that core investors holding a combined 23 percent of its stock planned to back its fundraising. Allianz SE, a Popular investor for 25 years, will hold 4.24 percent of the bank after the increase, trimming its stake from the 5.9 percent reported to regulators this month.
Third-quarter profit fell to 75.6 million euros from 98.6 million euros in the same period a year earlier, Popular said in a filing to regulators today. That surpassed the 42 million-euro median estimate in a Bloomberg survey of nine analysts.
Popular’s business plan, which includes provisions of 7.5 billion euros for loans to real-estate developers and 5.4 billion euros for foreclosed assets, amounts to a “massive clean-up,” Gonzalez-Robatto said today. The bank said on Oct. 1 that it was set to book a 2.3 billion-euro loss this year, compared with a previous estimate of 400 million euros in profit, because of the accelerated clean-up plan.
Gonzalez-Robatto said the plan was designed to buttress the bank against a weakening economy that’s still causing “worrying” trends in real-estate asset quality.
Net loans newly classed as in default jumped to 2.02 billion euros in the third quarter from 1.08 billion euros in the second quarter. Bad loans as a proportion of total loans jumped to 7.81 percent from 6.98 percent in June, the bank said.
Popular’s profit before provisions rose to 460.8 million euros from 389.3 million euros a year earlier, while net interest income jumped 30 percent to 667.7 million euros. Lending to customers fell to 118 billion euros in September from 120 billion euros in June, as deposits rose to 77.9 billion euros from 76.8 billion euros.