Spain’s Banco Popular Studying Steps to Boost Liquidity

  • Lender said to hold meeting Tuesday with European Central Bank
  • Bank has lost about 38% of its market value in the past week

Popular in Fight to Survive as Bank Updates ECB

Banco Popular Espanol SA is reviewing how to bolster liquidity drained by deposit withdrawals and a deterioration of its credit, according to people familiar with the matter.

The Madrid-based bank, racing to sell assets and find a buyer, plans to meet Tuesday with the European Central Bank to discuss options, the people said, asking not to be identified as the plans are private. The lender may request additional central bank loans, one of the people said. It’s also considering seeking oversight from central bank officials to guide the board’s decisions should it not obtain the extra liquidity, the person said.

The bank won’t confirm or comment on its meetings with the ECB, which have no specific agenda, a spokesman for Popular said by phone on Friday. Chairman Emilio Saracho sent a letter to Popular staff as the markets closed, assuring them the bank remains solvent following a week of turbulence, the newspaper Expansion reported.

The firm has put itself up for sale as soured real estate weakens its finances, with the stock losing about 38 percent of its market value this week. The company has raised at least 209 million euros ($234 million) in recent weeks by selling its remaining stake in Targobank -- a joint venture with France’s Credit Mutuel -- as well as a minority stake in real estate company Merlin Properties Socimi SA.

The shares plunged more than 17 percent for the second day in a row, closing at 0.41 euros in Madrid. Banco Popular’s 750 million euros of 8.25 percent AT1 notes were down less than 1 cent on the euro to 55 cents, according to data compiled by Bloomberg.

TotalBank Talks

Banco Popular has sold treasury shares, along with additional Tier 1 notes issued by itself and other lenders, people with knowledge of the matter said last week.

The lender is also in talks to sell its U.S. unit TotalBank to Chile’s Banco de Credito e Inversiones, people with knowledge of the matter said in April. The unit could be valued at about $500 million, the people said.

The new chairman, Saracho is on a mission to salvage the stricken lender and was also considering a share sale as an alternative to a sale. The lender, which shunned a bailout in 2012, has seen its capital eroded by mounting losses on the 37 billion euros of non-performing assets still piled up on its balance sheet. Still, deposits only fell 1 percent in the first quarter, the bank said on May 5.

The sale process is continuing, one person familiar with the matter said, asking not to be named because the matter is private. In his letter to sent to staff Friday afternoon, Saracho said the bank counts with a number of alternatives for its business, while telling Popular directors that it’s important to remain calm and instill confidence on clients.

Commercial banks can raise loans from the ECB by pledging collateral such as the lender’s own debt. The central bank applies a discount over the market price according to a set of criteria including the credit rating of the collateral. The ECB also can accept other lender’s assets such as pool of mortgages. 

Under exceptional situations the national central banks that belong to the euro can provide so-called Emergency Liquidity Assistance.

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