Spanish bank buyout showcases Europe’s new anti-crisis rules

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European leaders agreed to move banking supervision to the EU level — so-called “banking union” — due to concerns that national regulators were too slow to flag problems at their home banks. The ECB took over supervisory responsibility on in November 2014.

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Madrid-based Popular has been struggling with 7.9 billion euros ($ 8.9 billion) in non-performing assets, including 7.2 billion euros ($8.1 billion) in real estate.

As confidence waned in Popular, shares in the bank fell about 38 per cent last week and another 20 per cent this week, to 0.32 euros per share before regulators halted trading in its shares ahead of Wednesday’s market opening. Popular had 305,152 shareholders as of the end of March.

The sale is “in the public interest as it protects all depositors of Banco Popular and ensures financial stability,” said the European agency that manages failing banks in the 19-country eurozone, of which Spain is a member.

The Spanish government had previously ruled out bailing the bank with taxpayers’ money. On Wednesday, Economy minister Luis de Guindos said the sale was “a good outcome” given the shortfall of the lender over the past weeks. The takeover “ensures the maximum protection for depositors and the continuity of the bank’s activity,” said De Guindos.

With the takeover, Santander becomes the largest Spanish bank by lending and deposits, reaching 17 million customers.

The investment also covers Popular’s assets in Portugal, bringing Santander’s total customers in the neighbouring country to 4 million.

“The combination of Santander and Popular strengthens the Group’s geographic diversification at a time of improving economic conditions in both Spain and Portugal,” said Santander Chair Ana Botin.

Santander said that the deal would not materially affect the Santander’s financial health and that it expected to generate returns on its investment of 13-14 per cent in 2020.

Santander’s shares fell 3 per cent in early trading and then recovered to stand 0.4 per cent lower at 5.77 euros.

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David McHugh in Frankfurt, Germany, contributed to this report.

Aritz Parra, The Associated Press