Banco Popular (BPESF) shares fell sharply again Monday as lenders in Spain came under renewed pressure amid investors concern over capital levels in the country's banking sector.
Popular has been besieged by capital concerns in recent weeks after reports from Reuters suggested that the Single Resolution Board (SRB) has warned European officials that the bank might need to be wound down in the event that it cannot find a buyer for itself.
Previous reports, in mid-May, had suggested the bank came under pressure from European Central Bank officials over its non-performing loans (NPLs) during a recent meeting.
"Banco Popular Espanol S.A. is once more obliged to deny the completion of an inspection by the European Central Bank (ECB) two weeks ago or recently, issuing conclusions concerning provisions, or issuing any appraisals concerning deposits at the Bank," the bank said at the time.
Banco Popular stock fell as much as 16% during early trading in Madrid, to change hands at a fresh all time low of €0.33, outpacing the 0.15% Stoxx Europe 600 Banks index and are down around 60% since the start of the year.
The lender is battling against a mammoth pile of nonperforming loans and profitability pressures in its home market, Spain, where record low interest rates have hampered its bottom line.
"(Popular) passed its stress tests ... it is in the process of a sale or a capital raise, nothing more. Complete calm. We are going to wait for the next steps," said Spanish government spokesperson Inigo Mendez de Vigo, at a news conference Friday.
Popular has nonperforming real estate assets of around €37 billion which, when stood next to 2016's €94 billion loan book, implies an NPL ratio of nearly 40%.
"We believe that at least €3bn of capital is required, yet a rights issue may erode TNAV per share by 75%. He may thus be forced to pursue a sale of the bank with little bargaining power," said Andrew Lowe, an analyst at Berenberg, in February.
The ECB has said repeatedly that it will be coming down hard on lenders whose NPL ratios are considerably above the European average, currently around 5% of total loans, which has posed a problem mostly only for Italian banks.
But Popular is an outlier, with the highest NPL burden in Europe. It has been considering a sale of itself and courting prospective buyers during recent months and hopes to receive firm offers by June 10.
"These issues are critical; we do not believe investors or regulators will give Popular time to address them. The assertion that it can build capital by asset sales and retained earnings is unrealistic, in our view," said Lowe.
Press reports have labelled Banco Santander (SAN - Get Report) as a possible buyer in any sale while, given the beginning of June expiry of a bailout-related prohibition on corporate transactions, Bankia (BNKXF) could also be in the running.
Santander and Bankia stocks were both trading lower Monday, by just more than 1% each, at €5.76 and €4.047 respectively.
In the absence of a sale or rights issue, Popular will need to flog assets. It has been running the rule over its asset base with a view to raising capital for some months.
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