On Wednesday, Banco Santander S.A. (NYSE: SAN), the Spain's biggest bank, announced that it acquired struggling Banco Popular by paying a notional consideration of €1, which was the first test for the system built by Europe to contain the collateral damage from failing banks.
Santander will complete a rights issue for € 7 billion, which will cover the capital and provisions to strengthen Banco Popular’s balance sheet. Banco Popular’s failure was influenced by its exposure to toxic mortgages left over from the housing boom in financial crisis.
“This deal is good for Spain and it's good for Europe,” Ana Botin, the chairman of Santander, said of the agreement.
After the acquisition, the combined business is expected to generate a return of 13% to 14% in 2020, and EPS is expected to increase in 2019. The expected cost synergies will be around € 500 million per year from 2020.
For Santander, the acquisition will enhance its franchise in both Spain and Portugal. The bank will serve over 17 million customers and occupy a credit market share of around 20% in Spain. The combined business will also have a market share of 25% in SME lending in Spain.