Banco Pastor Merger Revives Spanish Bank Cleanse

NEW YORK ( TheStreet) -- Banco Pastor, one of five Spanish banks to fail European bank stress tests in July, has agreed to be acquired by Banco Popular Espanol, according to Spanish regulator the Comisión Nacional del Mercado de Valores.

The all-stock deal announced Friday values Banco Pastor at $1.3 billion. The per share consideration of EUR 3.975 a share represents a more than 30% premium over the price of Banco Pastor's stock prior to the announcement.

Back in July, Banco Pastor was one of nine European banks to fail a stress test administered by the European Banking Authority on 91 of the Eurozone's largest lenders. The deal for Banco Pastor is one of the largest banking mergers in Spain this year, and it potentially is a signal of continued consolidation within the nation's troubled banking sector.

For Spanish banks, merging failing institutions with healthier ones has been an alternative way to solve capital shortfalls at many distressed lenders. Banco Pastor, whose history stretches back to the 18th century, is headquartered in La Coruna, Spain. The institution has EUR 31 billion in assets and lends primarily in the North West of Spain. Bloomberg reported that its earnings fell nearly 40% this year, when compared to last. Pastor will join the larger Banco Popular, Spain's fifth largest bank with EUR 130 billion in assets and a specialty in personal banking and business lending.

In 2009, the Spanish government set up the EUR 9 billion Fund for Orderly Bank Restructuring, or Frob, to seize failing banks and merge them with healthier institutions. After seizing control of six banks, the fund's been criticized for not coordinating mergers in a timely manner. So far in addition to seizures, the number of regional Spanish lenders has fallen from 45 to 15, with assistance from the Bank of Spain.

-- Written by Antoine Gara in New York

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