Popular Jumps as CEO Says Defaults to Ease: Madrid Mover

Banco Popular Espanol SA, a Spanish bank forced to sell shares last year to cover a capital shortfall, surged in Madrid after Chief Executive Officer Francisco Gomez said new loan defaults will ease significantly next year.

Banco Popular climbed as much as 7.3 percent to 4.19 euros, the biggest increase in three months. The shares rose 5.8 percent at 1:59 p.m., valuing the company at 7.4 billion euros ($10.1 billion). Gomez told analysts on a webcast today that he was also optimistic about lending margins.

Gomez spoke as Banco Popular reported net income falling 25 percent to 56.9 million euros in the third quarter from a year ago. That beat the 40 million euros estimated by analyst Ignacio Ulargui at Banco Bilbao Vizcaya Argentaria SA. Popular is targeting annual earnings of 1.4 billion euros by next year as it rebuilds profit after a balance-sheet cleanup that caused a 2.46 billion-euro loss in 2012.

“We count on a model that’s sustainable, profitable and well-prepared to gradually generate greater returns than our competitors and in a sustained way,” Gomez said.

The bank will take a decision on whether to reinstate its dividend before year-end and aims to resume a policy of distributing 50 percent of profit to shareholders, said Gomez in a news conference in Madrid today. The bank, which suspended its dividend a year ago, is on course to meet a target of earning 500 million euros this year, he said.

Bad Debt

Non-performing loans as a proportion of total lending rose to 11.8 percent from 10.8 percent at the end of the second quarter, Popular said. The bank has reclassified 2.4 billion euros of refinanced loans as non-performing so far this year and expects the total amount reclassified during 2013 to reach 3.2 billion euros, said Gomez.

Banco Popular’s shares jumped by two thirds since the end of June as investors bet the stock was oversold even as the company faced rising bad loans and weak credit demand.

Net interest income fell to 603.7 million euros in the third quarter from 659.9 million euros in the previous three months and 667.7 million euros in the same quarter a year ago, the bank said.

The lender said it cut its use of emergency borrowing under the European Central Bank’s LTRO program by 5.2 billion euros to 8.5 billion euros during the quarter and its total use of ECB funding by 9.9 billion euros to 8.9 billion euros.

Banco Popular also reduced its bond portfolio to 19 billion euros from 23.6 billion euros. Gross lending fell 4 percent from a year ago, it said.

Before it's here, it's on the Bloomberg Terminal.