A group of bondholders from Banco Popular have filed an appeal against June’s rescue by Santander. The sale of Popular to Santander for one euro has given rise to a wave of claims. PIMCO, Algebris, Capital Group, Cairn Capital and Ronit Capital, among others, have filed appeals against Fondo de Reestructuración Ordenada Bancaria (or Fund for Orderly Bank Restructuring), a bailout and reconstruction program that liquidates banks. The appeal to Spain’s High Court addresses the millions of euros of losses suffered by bondholders.
In early June, the European Central Bank announced that Spain’s Banco Popular was about to fail due in the main to the toxic real estate loans still on their books from over a decade ago. The bank failed to raise sufficient capital to fix the damage caused by 37 billion euros in bad loans made before the financial crisis that hit the Spanish housing market a decade ago. Santander made a “highly strategic or risky move” by taking over all the assets and liabilities of its rival for a nominal sum of €1, a move designed to limit the damage caused to Spain’s economy. “This deal is good for Spain and it's good for Europe,” said Ana Botin, Santander’s chairman and one of the banking industry’s most influential figures.
With the acquisition, Banco Santander inherited all the toxic loans and losses that Popular had on its books. Shortly afterwards, Santander launched a €7.1bn rights issue to cover the capital and provisions needed to strengthen the balance sheet of their new asset.
Santander therefore has pushed the so-called loyalty bonds this September, in order to compensate retail customers affected by the Banco Popular resolution. But there is a condition: Acceptance of the securities would mean "irrevocable and an unconditional waiver of the exercise of legal actions and claims" against Santander, Popular and its former subsidiaries. Customers who have invested up to €100,000 will receive the full amount. When that amount is exceeded, the bank will apply progressive deductions of 25% for amounts between €101,000 and €500,000, 50% for investments between €500,001 and €1 million and 100% deductions for higher amounts.
Bondholders who accept can expect to be paid quarterly, with the first payment occurring on March 15th of next year.
Spanish giant Banco Santander, has a track record of buying troubled lenders and it is a strategy that has transformed them into a major player in the banking market. In 2008, it purchased Alliance & Leicester for £1.3bn and also acquired the savings book of the collapsed Bradford & Bingley. Thirteen years ago, it bought struggling UK bank Abbey National for £8bn.