Santander has announced the acquisition of Spanish bank Popular at auction for €1
The deal will create Spain’s largest bank by lending and deposits, with 17 million customers and a 25% share of the country’s SME finance market.
Santander now aims to raise €7bn through a rights issue in order to cover the capital and provisions required to strengthen Popular’s balance sheet.
“We welcome Banco Popular customers as part of the Santander Group and will work hard to continue serving them at the highest standards through the transition and beyond,” said Ana Botin, group executive chairman at Banco Santander.
“The combination of Santander and Popular strengthens the group’s geographic diversification at a time of improving economic conditions in both Spain and Portugal, and will allow us to continue to deliver for customers and shareholders on all our commitments.”
The combined entity will be led by the current management team of Santander Spain with Rami Aboukhair as CEO.
Santander expects the acquisition to generate a return on investment of 13-14% in 2020.
To bring Popular’s provisions and capital in line with the rest of the group, the bank will make additional provisions for non-performing assets of €7.9bn, including €7.2bn for real estate.
This will increase coverage for real estate assets and real estate non-performing loans from 45% to 69%, significantly higher than the peer average of 52%.
The group expects to reduce Popular’s real estate exposure significantly as it has done at Banco Santander in recent years.
Santander hopes the transaction will enhance its capacity to generate capital organically going forward.
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