Banco Santander has taken over Spain's Banco Popular Espanol for a nominal €1 after the European Central Bank (ECB) said the lender was "likely to fail".
Santander, the biggest bank in Spain, will carry out a capital increase of around €7bn (£6.1bn) to buy its struggling competitor.
The EU's Single Resolution Board today said it had transferred all shares and capital instruments to Santander. "This means that Banco Popular will operate under normal business conditions as a solvent and liquid member of the Santander Group with immediate effect," the board said.
Santander's stock fell three per cent at the market open, making it the biggest faller on Europe's main banking index. Shares were down 1.87 per cent at 497.03p at the time of publishing.
Santander said the takeover will enhance its franchises in Spain and Portugal. The acquisition is expected to generate a return on investment of 13 to 14 per cent in 2020, an increase in earnings per share in 2019, and cost synergies of close to €500m per year from 2020, Santander said.
"The acquisition meets Santander’s strategic and financial investment criteria, with future enhancements expected in all key financial performance metrics for the group. It is also consistent with our ongoing commitment to consider add-on acquisitions within our core markets where they add value to customers and shareholders," the lender said in a statement.
The ECB yesterday said Banco Popular was running out of cash and "failing or likely to fail".
"The significant deterioration of the liquidity situation of the bank in recent days led to a determination that the entity would have, in the near future, been unable to pay its debts or other liabilities as they fell due," the ECB said in a statement.
Ana Botín, executive chairman of Santander, said: “We welcome Banco Popular customers as part of the Santander Group and will work hard to continue serving them at the highest standards through the transition and beyond."
The combination of Santander and Popular strengthens the group's geographic diversification at a time of improving economic conditions in both Spain and Portugal, and will allow us to continue to deliver for customers and shareholders on all our commitments.