Banco Santander SA shares traded lower Monday after Spain's biggest bank published details of its $8 billion capital raising plan in a move to fund its takeover of failing lender Banco Popular.
Santander said late Monday that it will raise €7.1 billion ($8 billion) in a rights issue that offers shares at €4.85 each, a 19% discount to Monday's closing price. Investors have until July 20 to take up the offer, with the new shares ready for trading by the end of the month.
"The acquisition of Popular is a unique opportunity to accelerate our strategy in Spain and Portugal. We expect it will deliver excellent returns for the bank and its shareholders, while providing important stability for Popular's customers and the Spanish economy," said CEO Ana Botin. "We expect the acquisition will enhance all our key financial performance measures for the Group from 2019 and beyond, generating a return on investment of 13-14% by 2020."
Santander shares were marked 0.75% lower at €5.96 each in the opening 45 minutes of trading in Madrid, trimming their three-month gain to just over 5.1%.
Santander won the bidding for Banco Popular in an auction conducted by regulators in early June and is using the €7 billion in new cash to cover reserves for unpaid loans by Banco Popular customers and meet capital requirements set by regulators.
Both the European Union's Single Resolution Board, created in 2015 to ensure the orderly wind-down of failing lenders, and a comparable agency in Spain decided the sale was necessary to protect depositors and ensure financial stability.
The combination will start to boost earnings by 2019 and generate a return on investment of as much as 14% in 2020, Santander said. Through the acquisition, which will add €89.2 billion in loans to Santander's balance sheet in Spain, the company's share of the country's lending market will grow roughly seven percentage points to 19.5%.