Autopsy of Banco Popular Shows How Fragile Europe’s Banking System Is, by Don Quijones

How much longer can Europe and its banks keep dodging bullets? From Don Quijones at wolfstreet.com:

What would a disorderly bank collapse in Spain and Italy have done?

New information has revealed just how serious a threat a disorderly collapse of Spain’s sixth largest bank, Banco Popular, might have posed to Spain’s banking system. In its final days, Popular was bleeding deposits at a rate of €2 billion a day on average.

Much of the money was being withdrawn by institutional clients, including global mega-fund BlackRock, Spain’s Social Security fund, Spanish government agencies, and city and regional councils, prompting accusations that Spain’s government was using insider knowledge to withdraw large amounts of public funds, which of course hastened Popular’s demise.

All the while, Spain’s Economy Minister was telling the bank’s less privileged investors, including retail shareholders and junior bondholders, that there was absolutely nothing to worry about. Those that believed him lost everything.

Between the end of March and its last day of trading, Popular shed €18 billion of deposits, roughly a quarter of the total. On the night of June 6, Europe’s Single Supervisory Mechanism decided that the bank could no longer cover its collateral. Popular, warts and all (take note, Italy), was sold for the meager sum of €1 to Banco Santander, though Santander will have to raise €7 billion of fresh capital to fully digest the bad stuff on Popular’s books.

According to the newly published report, the run on deposits did not end with Santander’s shotgun takeover of the bank. The day after the operation — a Wednesday — the money kept pouring out. The same happened on Thursday. On Friday, the deluge slowed a little. By Monday, the tide had finally turned, industry sources say. On that day, for the first time in a long time, Popular’s accounts witnessed more deposits than withdrawals.

To prevent a complete collapse of Popular, Santander had to inject €13 billion of its own funds into the bank’s accounts — one of the biggest one-off transfers of funds in recent Spanish history.

To continue reading:

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s