Banco Popular reports Q1 loss; sets aside €496m for real estate losses

Banco Popular unveiled a first quarter loss of €137m on Friday, as the troubled Spanish lender was once again forced to raise provisions for its toxic real estate portfolio.

The Madrid-based group is widely seen as the weakest link in the Spanish banking system, amid speculation that the only way forward for Popular is either a massive capital increase or a sale to one of the country’s larger banks.

Emilio Saracho, a former JP Morgan banker who was brought in as the new Popular chairman earlier this year, has indicated he will eventually try and raise capital, but only after boosting the bank’s capital position through disposals. Analysts estimate that Popular could need as much as €4bn in fresh equity – significantly more than its current market value of €2.9bn.

In the three months to March, Popular recorded a net loss of €137.1m, compared to a profit of €93.6 in the same period last year. Net interest income – the earnings a bank makes on its core lending activities – fell 9 per cent to €499.6m.

The main cause of Popular’s loss this year was the need to set aside €496m in fresh provisions, an increase of 70 per cent on the same period last year.

Popular, already recognised as one of the leanest banks in the sector, managed to squeeze further efficiencies out of its network, with costs falling 10 per cent compared to the first quarter 2016.

“The principal business of the bank [retail and corporate banking] continues to show its strength, with net profits of €180m in the first quarter. On the other hand, the real estate business lost €317m in the period to March,” Popular said in its earnings release on Friday.

Despite its well-publicised difficulties, Popular said its credit business was “stable”, with loans to small and medium sized companies rising 1.7 per cent year-on-year. SME lending has long been seen as the core strength of Popular, and the main reason why the bank might be of interest to rival buyers.

Bad loans accounted for 14.91 per cent of the loan book, up from 12.68 per cent one year ago. The bank’s fully-loaded core equity tier 1 ratio – a closely-watched measure of capital strength – stood at 7.33 per cent at the end of March, significantly below Popular’s peers.

The bank’s shares were unchanged in morning trading. Popular has lost more than 60 per cent of its value over the last year, and more than 90 per cent over the past five years.