Santander Buys Portugal's Banif for $163 Million Amid Resolution

  • Banif clients, branches to be transferred in bank resolution
  • `Problematic assets' won't be part of Santander's acquisition

Banco Santander SA agreed to buy lending operations of Portugal’s Banif-Banco Internacional do Funchal SA for 150 million euros ($163 million) in Chairman Ana Botin’s first acquisition since taking over last year.

Banif’s clients and branches will be transferred to Santander as part of a resolution of the Funchal, Madeira-based lender, the Bank of Portugal said in a statement on Sunday night. Portugal is setting aside 2.26 billion euros for “future contingencies” with the Resolution Fund providing 489 million euros and 1.77 billion euros coming directly from the state.

Botin, 55, has pledged to focus on the bank’s main business of lending in 10 key markets, including Portugal. Santander had considered a purchase of Novo Banco SA, the lender that emerged from the breakup of Banco Espirito Santo SA, without making an offer. While the sale was suspended, Santander will analyze it again if the process restarts, Chief Executive Officer Jose Antonio Alvarez has said.

“I know that the resolution of a bank is painful and costly for taxpayers,” Portuguese Prime Minister Antonio Costa said on Sunday in a speech broadcast by television channel SIC Noticias. “An advantage of this option is that it is a definite solution for the problem.”

Santander shares fell 3 percent to 4.57 euros at 9:43 a.m. in Madrid. They have dropped about 36 percent this year. Shares of Banif have dropped 65 percent this year, giving the lender a market value of about 231 million euros. They were suspended ahead of the deal.

“Problematic assets” won’t be transferred to Santander and will go to an asset management vehicle, the Bank of Portugal said. A “very restricted” set of assets will remain at Banif to be liquidated in the future, as well as subordinated debt.

The purchase will increase Santander’s market share in Portugal by 2.5 percentage points to 14.5 percent in loans and deposits, it said Monday in a regulatory filing. The deal will have an “immaterial impact” on capital and is seen adding to earnings in 2016, it said.

In 2013, Portugal injected 1.1 billion euros into Banif after the lender was unable to raise enough capital to meet a regulatory threshold. The bank has since increased its buffers, helping the government cut its stake to 60.5 percent. The European Commission approved the state aid to cover a potential funding gap in the resolution of Banif.

EU Probe

The Portuguese state subscribed for 700 million euros of special stock and 400 million euros in contingent convertible bonds in 2013. Banif had repurchased part of the CoCos, reducing the amount of these instruments to 125 million euros. It had pledged to pay back all of the CoCos by the end of 2014, and the rest of the state aid by the end of 2017.

Banif was facing a European Commission probe into the aid it received. The commission had said that Banif’s restructuring plan might not be enough to allow the bank to repay the state. The Bank of Portugal said in the statement on Sunday that a “probable” decision from the commission declaring the state aid illegal would create a shortage of capital at the bank.

Banif had 6.3 billion euros of deposits as of June, according to the central bank. It is the market leader in Portugal’s island regions of Madeira and Azores.

The sale of Banif follows last year’s resolution of Banco Espirito Santo, once Portugal’s biggest bank by market value. Most of Espirito Santo’s assets were moved to a new lender called Novo Banco.

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