- The Banking Crisis in Spain is Back
by Don Quijones, Spain & Mexico, editor at WOLF STREET.
The shares of Banco Popular got crushed.
After three years of relative calm and one month before yet another round of do-or-die general elections, the words “banking” and “crisis” are back on the front pages of Spain’s newspapers. Despite the untold billions of euros of public funds lavished on “cleaning up” their balance sheets and the roughly €240 billion of provisions booked against bad debt since December 2007, the banks are just as weak and disaster-prone as they were four years ago.
Francisco González, the President of Spain’s second biggest financial institution, BBVA, was the first to raise the alarm, warning a few days ago that the ECB’s negative interest rate policy “is killing” European banks.
Now, it seems González’s prophecy is already coming true. Spain’s sixth largest financial institution, Banco Popular, on Wednesday evening announced that it was urgently seeking to raise €2.5 billion in capital in order to shore up its finances. The news took many of the firm’s investors by surprise given that just a month ago the bank’s CEO Francisco Gomez had breezily reported that the bank had a very comfortable core capital level above the regulatory minimum and “one of the best” leverage ratios in the sector.
The market’s response to the latest news was emphatic. The bank’s shares plunged 25% Thursday morning. There was not even the barest flicker of a recovery on Thursday afternoon. On Friday, the stock dropped another 8.2%, to close at €1.59 per share, its lowest in 26 years. Over the three days, the stock plummeted 32%.
For the bank’s shareholders, it’s the second time this has happened in the last four years. In 2012, the bank’s management — virtually man-for-man the same management team as today — pulled the exact same stunt in an effort to stabilize the bank’s finances. The slogan the bank chose to sell that capital increase was “Our Past and Our Present Guarantee Our Future.”