Banco Popular has announced a €3.5bn annual loss after the Spanish bank took heavy impairments for its large portfolio of toxic loans, triggering predictions by analysts that it will need to raise fresh capital.
The annual loss, which is almost equal to Popular’s market capitalisation, was bigger than expected by analysts. It dragged the bank’s common equity tier one ratio – a key measure of financial strength – from 13.7 to 8.2 per cent.
Despite two highly dilutive capital increases, the lender’s balance sheet is still seen by investors as too weak for comfort. The bank’s share price has fallen more than 90 per cent over the past five years. It is now widely considered to be a takeover target.
Popular was hit by a number of “non-recurrent items” including €4.2bn of provisions for bad debts, €370m of restructuring costs, €240m of goodwill writedowns on its Targobank subsidiary and €229m provisions for compensating mortgage customers.
The bank slumped to a net loss of €3.5bn in 2016, compared with a €105m profit the previous year. But the bank said it would have made a €185m profit excluding the one-off items and it was confident of boosting its capital ratio by selling assets, treasury shares and from organic profit generation.
After 12 disappointing years at the helm, Angel Ron will finally relinquish his post as chairman, to be replaced by veteran banker Emilio Saracho, who joins from JPMorgan in London and is due to be confirmed at a shareholder meeting this month.
“The new chairman has clearly wanted to take big write-offs and clean the book, which is a positive,” analysts at Berenberg said on Friday.
“However, with an 8.2 per cent common equity tier one ratio it is clear that Popular must raise a significant amount of capital.”
The Berenberg analysts estimated that it “would need to roughly double its share count” to raise the €2.7bn need to increase its common equity tier one ratio to 12 per cent.