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Santander rescues Spain's failing Banco Popular from collapse - business live Santander rescues Spain's failing Banco Popular from collapse - business live
(35 minutes later)
12.06pm BST
12:06
Most European stock markets have crept a little high this morning, as traders enjoy a quiet day ahead of tomorrow’s excitement.
Spain’s IBEX is lagging behind, with Banco Santander down 2% following its plan to raise €7bn in new capital to cover Banco Popular’s non-performing assets.
Thursday will include Britain’s general election, a European Central Bank meeting, and ex-FBI chief James Comey testifying to Congress.
Craig Erlam, senior market analyst at OANDA, says:
We’re seeing mild gains in the FTSE in what is otherwise a mixed European session this morning. US futures are pointing a little higher ahead of the open, with little direction coming from across the pond.
The UK index has stabilised in the weeks leading up to the election, with the sudden uncertainty around the outcome appearing to be contributing to the moves.
11.31am BST11.31am BST
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There’s suddenly some drama in the markets, as the euro slides to a four-day low.There’s suddenly some drama in the markets, as the euro slides to a four-day low.
The single currency shed half a cent to $1.122 after Bloomberg reported that the ECB is preparing to cut its inflation forecasts.The single currency shed half a cent to $1.122 after Bloomberg reported that the ECB is preparing to cut its inflation forecasts.
The ECB is getting ready to cut its inflation outlook through 2019, according to Bloomberg reports. #Euro hit across the boardThe ECB is getting ready to cut its inflation outlook through 2019, according to Bloomberg reports. #Euro hit across the board
Government bond prices are also jumping, pushing down the yield (interest rate) on that debt.Government bond prices are also jumping, pushing down the yield (interest rate) on that debt.
Lower inflation forecasts means less chance of the ECB tightening monetary policy soon, and unwinding its huge bond purchase scheme.Lower inflation forecasts means less chance of the ECB tightening monetary policy soon, and unwinding its huge bond purchase scheme.
Bond #yields fall after @business reports #ECB will lower #inflation forecasts! pic.twitter.com/AimzuKHoAhBond #yields fall after @business reports #ECB will lower #inflation forecasts! pic.twitter.com/AimzuKHoAh
11.12am BST11.12am BST
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The Financial Times also argue that the Banco Popular bailout has bolstered the credibility of Europe’s banking sector.The Financial Times also argue that the Banco Popular bailout has bolstered the credibility of Europe’s banking sector.
Their Madrid bureau chief Tobias Buck writes:Their Madrid bureau chief Tobias Buck writes:
Analysts said that the ability of eurozone authorities to decisively step in to wind down Popular and safeguard its assets gives the EU regime new credibility after questions were raised during the tortuous struggle to clean up Italy’s troubled banks.Analysts said that the ability of eurozone authorities to decisively step in to wind down Popular and safeguard its assets gives the EU regime new credibility after questions were raised during the tortuous struggle to clean up Italy’s troubled banks.
“It’s essentially a case of the regulation doing exactly what it was created for,” said Laurent Frings, head of credit research at Aberdeen Asset Management. “But it does show that there is real risk in investing in these second tier names in the banking sector.“It’s essentially a case of the regulation doing exactly what it was created for,” said Laurent Frings, head of credit research at Aberdeen Asset Management. “But it does show that there is real risk in investing in these second tier names in the banking sector.
V good summary of the Banco Popular story by @TobiasBuckFT. Overall very positive for credibility of #BankingUnion. https://t.co/Z3zmAnmU4pV good summary of the Banco Popular story by @TobiasBuckFT. Overall very positive for credibility of #BankingUnion. https://t.co/Z3zmAnmU4p
UpdatedUpdated
at 11.14am BSTat 11.14am BST
11.01am BST11.01am BST
11:0111:01
The rescue of Banco Popular means that attention will now turn to Italy’s financial sector.The rescue of Banco Popular means that attention will now turn to Italy’s financial sector.
Some analysts are speculating on whether any Italian banks will fall into Europe’s resolution mechanism, as some regional lenders are struggling to raise fresh capital.Some analysts are speculating on whether any Italian banks will fall into Europe’s resolution mechanism, as some regional lenders are struggling to raise fresh capital.
Analysts at ABN Amro, though, fear that some Italian banks aren’t as attractive as Popular.Analysts at ABN Amro, though, fear that some Italian banks aren’t as attractive as Popular.
The deal is facilitated by the fact that Banco Popular is actually strong enough to have buyers. Especially their loan book, and diversification to Portugal was of interest. Crucially, the deal could be performed without the need for state assistance. However, in Italy, the banks of Veneto and Vicenza are not in the equivalent balance sheet position as the Banco Popular. It would seem that the large institutions in Italy would be unwilling to take over the banks without the interaction of the Italian state, either via the Atlante fund or another mechanism.The deal is facilitated by the fact that Banco Popular is actually strong enough to have buyers. Especially their loan book, and diversification to Portugal was of interest. Crucially, the deal could be performed without the need for state assistance. However, in Italy, the banks of Veneto and Vicenza are not in the equivalent balance sheet position as the Banco Popular. It would seem that the large institutions in Italy would be unwilling to take over the banks without the interaction of the Italian state, either via the Atlante fund or another mechanism.
The question now is, if Banco Popular has now been stated as ‘failing or likely to fail’ by the SRB, what does this mean for the arguably weaker banks of Veneto and Vicenza banksThe question now is, if Banco Popular has now been stated as ‘failing or likely to fail’ by the SRB, what does this mean for the arguably weaker banks of Veneto and Vicenza banks
10.45am BST10.45am BST
10:4510:45
This chart, from M&S’s Bond Vigilantes team, shows how Banco Popular’s risky bonds have been wiped out by today’s deal (the orange line).This chart, from M&S’s Bond Vigilantes team, shows how Banco Popular’s risky bonds have been wiped out by today’s deal (the orange line).
But senior debt (which is further down the pecking order when a company fails) is not being ‘bailed-in’ to today’s rescue, so its value has actually risen.But senior debt (which is further down the pecking order when a company fails) is not being ‘bailed-in’ to today’s rescue, so its value has actually risen.
Banco Popular to be sold to Santander. AT1 collapses by 90%, senior debt rallies. Not all debt created equal. pic.twitter.com/TAZAjBRv9TBanco Popular to be sold to Santander. AT1 collapses by 90%, senior debt rallies. Not all debt created equal. pic.twitter.com/TAZAjBRv9T
UpdatedUpdated
at 10.56am BSTat 10.56am BST
10.40am BST10.40am BST
10:4010:40
Markets take Banco Popular rescue in their strideMarkets take Banco Popular rescue in their stride
Once upon a time, a failing eurozone bank would have sparked mayhem in the financial markets.Once upon a time, a failing eurozone bank would have sparked mayhem in the financial markets.
Not today, though. The news that Banco Popular has been acquired for one shiny euro by Santander has caused a notable lack of drama.Not today, though. The news that Banco Popular has been acquired for one shiny euro by Santander has caused a notable lack of drama.
And that’s because Europe’s bank resolution mechanism is acting like it was meant to. Shareholders in a failed bank have been wiped out, and crucially so have the riskier bondholders.And that’s because Europe’s bank resolution mechanism is acting like it was meant to. Shareholders in a failed bank have been wiped out, and crucially so have the riskier bondholders.
Various Banco Popular debt instruments have been written down, or converted into equity which was then handed to Santander, as part of today’s deal.Various Banco Popular debt instruments have been written down, or converted into equity which was then handed to Santander, as part of today’s deal.
That means that bondholders who took a risk by holding this debt (which offered attractive returns) are suffering losses, rather than the taxpayer.That means that bondholders who took a risk by holding this debt (which offered attractive returns) are suffering losses, rather than the taxpayer.
James Mackintosh of the Wall Street Journal has tweeted the details:James Mackintosh of the Wall Street Journal has tweeted the details:
1. Banco Popular: Mid-sized European bank fails with just a few days' warning, markets don't care.1. Banco Popular: Mid-sized European bank fails with just a few days' warning, markets don't care.
2. One reason: senior debt will be paid in full. ECB resolution worked, junior debt wiped out. But almost all POP's debt is covered bonds2. One reason: senior debt will be paid in full. ECB resolution worked, junior debt wiped out. But almost all POP's debt is covered bonds
3. Junior debt being wiped out is the orange, purple and green bits on here, totalling ~€2.4bn, about 10% of total bonds issued pic.twitter.com/GGbrM2HJxN3. Junior debt being wiped out is the orange, purple and green bits on here, totalling ~€2.4bn, about 10% of total bonds issued pic.twitter.com/GGbrM2HJxN
4. First test of contingent convertible bonds, CoCos, and it's a useful reminder to yield seekers that they come with catastrophe risk4. First test of contingent convertible bonds, CoCos, and it's a useful reminder to yield seekers that they come with catastrophe risk
10.24am BST10.24am BST
10:2410:24
The OECD also hiked its growth forecasts for the eurozone and Japan, but didn’t nudge its UK forecasts.The OECD also hiked its growth forecasts for the eurozone and Japan, but didn’t nudge its UK forecasts.
OECD Sees UK Growth Of 1.6 In 2017, 1.0% In 2018 (Both Unchanged)OECD Sees UK Growth Of 1.6 In 2017, 1.0% In 2018 (Both Unchanged)
OECD Sees Japanese Growth Of 1.4% In 2017 (Up From 1.2%), 1.0% In 2018 (Up From 0.8%)OECD Sees Japanese Growth Of 1.4% In 2017 (Up From 1.2%), 1.0% In 2018 (Up From 0.8%)
OECD Sees Euro Zone Growth 1.8% In 2017 And 2018 (Up From 1.6% In 2017 And 2018)OECD Sees Euro Zone Growth 1.8% In 2017 And 2018 (Up From 1.6% In 2017 And 2018)
10.21am BST10.21am BST
10:2110:21
Angel Gurria, head of the OECD, says we shouldn’t get too excited that global growth is heading for a six-year high of 3.5%.Angel Gurria, head of the OECD, says we shouldn’t get too excited that global growth is heading for a six-year high of 3.5%.
He told Reuters that:He told Reuters that:
“Everything is relative. What I would not like us to do is celebrate the fact that we’re moving from very bad to mediocre.“Everything is relative. What I would not like us to do is celebrate the fact that we’re moving from very bad to mediocre.
It doesn’t mean that we have to get used to it or live with it. We have to continue to strive to do better.”It doesn’t mean that we have to get used to it or live with it. We have to continue to strive to do better.”
10.06am BST10.06am BST
10:0610:06
Something to ponder....Something to ponder....
The middle-skill trap illustrated. Great chart from the @OECD's new global economic outlook. https://t.co/dZ83Pbtrlg pic.twitter.com/lLh7FGsnDRThe middle-skill trap illustrated. Great chart from the @OECD's new global economic outlook. https://t.co/dZ83Pbtrlg pic.twitter.com/lLh7FGsnDR
10.00am BST10.00am BST
10:0010:00
This shows why global growth still isn’t ‘good enough’, in the OECD’s view.This shows why global growth still isn’t ‘good enough’, in the OECD’s view.
9.49am BST9.49am BST
09:4909:49
This chart shows how the OECD expects the global economy to grow faster, but with many of the benefits heading to the richest:This chart shows how the OECD expects the global economy to grow faster, but with many of the benefits heading to the richest:
Global Economic Outlook: Better, but not good enough https://t.co/BKRzFSoTtY pic.twitter.com/ydkf0CPaNUGlobal Economic Outlook: Better, but not good enough https://t.co/BKRzFSoTtY pic.twitter.com/ydkf0CPaNU
9.47am BST9.47am BST
09:4709:47
OECD raises global growth forecasts, but sees Brexit pain aheadOECD raises global growth forecasts, but sees Brexit pain ahead
The OECD’s latest global economic outlook is just out, and it gives a mixed picture.The OECD’s latest global economic outlook is just out, and it gives a mixed picture.
On the upside, the Paris-based thinktank has hiked its global growth forecast this year to 3.5%, from 3.3% previously. That would be the best performance in six years.On the upside, the Paris-based thinktank has hiked its global growth forecast this year to 3.5%, from 3.3% previously. That would be the best performance in six years.
The OECD sees growth rising further to 3.6% in 2018.The OECD sees growth rising further to 3.6% in 2018.
But it is also concerned by persistent inequality in the global economy, lacklustre wage growth, and signs that the public are losing faith in their governments.But it is also concerned by persistent inequality in the global economy, lacklustre wage growth, and signs that the public are losing faith in their governments.
And it says the outlook is “better, but not good enough”.And it says the outlook is “better, but not good enough”.
OECD: outlook for global economy is 'better, but not good enough' https://t.co/bm0FuYlnccOECD: outlook for global economy is 'better, but not good enough' https://t.co/bm0FuYlncc
The OECD has cut its US growth forecasts, but it now more optimistic about China’s economic prospects.The OECD has cut its US growth forecasts, but it now more optimistic about China’s economic prospects.
OECD Sees Chinese Growth Of 6.6% In 2017 (Up From 6.5%), 6.4% In 2018 (Up From 6.3%)OECD Sees Chinese Growth Of 6.6% In 2017 (Up From 6.5%), 6.4% In 2018 (Up From 6.3%)
OECD: US economy to grow by 2.1% in 2017, down from previous 2.4% estimate. By 2.4% in 2018, down from 2.8%OECD: US economy to grow by 2.1% in 2017, down from previous 2.4% estimate. By 2.4% in 2018, down from 2.8%
My colleague Katie Allen has read the report, and explains:My colleague Katie Allen has read the report, and explains:
The OECD devoted a significant proportion of its latest report to the possible forces behind a backlash against globalisation. That discontent was seen as a key factor behind Donald Trump’s victory in the race for the US presidency, since when he has pledged to put “America first”. Anti-globalisation sentiment also appears to have boosted protectionist politicians in other countries, including France where the far-right candidate Marine Le Pen made it to the final round of the presidential election but lost to the centrist Emmanuel Macron.The OECD devoted a significant proportion of its latest report to the possible forces behind a backlash against globalisation. That discontent was seen as a key factor behind Donald Trump’s victory in the race for the US presidency, since when he has pledged to put “America first”. Anti-globalisation sentiment also appears to have boosted protectionist politicians in other countries, including France where the far-right candidate Marine Le Pen made it to the final round of the presidential election but lost to the centrist Emmanuel Macron.
The OECD said international trade had been a “powerful engine of global economic growth and convergence in living standards between countries” but that despite those gains, the backlash against it had been rising.The OECD said international trade had been a “powerful engine of global economic growth and convergence in living standards between countries” but that despite those gains, the backlash against it had been rising.
9.33am BST9.33am BST
09:3309:33
Readers may remember that Santander has a track record on rescuing ailing and troubled banks, including in the UK.Readers may remember that Santander has a track record on rescuing ailing and troubled banks, including in the UK.
It took over Britain’s Abbey National and Alliance & Leicester before the financial crisis in 2008, and then added Bradford & Bingley savers to its businesses when B&B’s mortgage book was nationalised.It took over Britain’s Abbey National and Alliance & Leicester before the financial crisis in 2008, and then added Bradford & Bingley savers to its businesses when B&B’s mortgage book was nationalised.
9.24am BST9.24am BST
09:2409:24
Santander's Botin: This is really great newsSantander's Botin: This is really great news
Santander’s chairman, Ana Botin, has insisted that she came under “absolutely no pressure” from regulators to rescue Banco Popular.Santander’s chairman, Ana Botin, has insisted that she came under “absolutely no pressure” from regulators to rescue Banco Popular.
Speaking on Bloomberg TV, she saysSpeaking on Bloomberg TV, she says
This is a transaction that is very good for our franchise in Spain and Portugal. It creates the best bank in both markets.This is a transaction that is very good for our franchise in Spain and Portugal. It creates the best bank in both markets.
Botin says that an opportunity arose yesterday to present an offer to the Single Resolution Board, to take over Popular, and she’s impressed by how quickly the rescue was handled.Botin says that an opportunity arose yesterday to present an offer to the Single Resolution Board, to take over Popular, and she’s impressed by how quickly the rescue was handled.
This is really great news for Europe, for the financial system, for Spain, and for Santander’s shareholders.This is really great news for Europe, for the financial system, for Spain, and for Santander’s shareholders.
Botin says that the deal won’t hurt Santander -- it is sticking with all its financial targets for 2017 and 2018, and will be able to improve on its targets from 2019.Botin says that the deal won’t hurt Santander -- it is sticking with all its financial targets for 2017 and 2018, and will be able to improve on its targets from 2019.
The €7bn of fresh capital is coming from a rights issue, she points out, so Santander’s capital reserves won’t be depleted.The €7bn of fresh capital is coming from a rights issue, she points out, so Santander’s capital reserves won’t be depleted.
There’s no word on any potential job cuts or branch closures. Botin says:There’s no word on any potential job cuts or branch closures. Botin says:
We are fully committed to supporting both the team and the customers from today.We are fully committed to supporting both the team and the customers from today.
But what about Popular’s non-performing real estate loans - does Santander really know what it’s taking on?But what about Popular’s non-performing real estate loans - does Santander really know what it’s taking on?
Botin says her staff did have time to do due diligence on Popular’s assets, prior to making its offer. And with Spain’s economy growing strongly, she’s confident this deal will be a success.Botin says her staff did have time to do due diligence on Popular’s assets, prior to making its offer. And with Spain’s economy growing strongly, she’s confident this deal will be a success.
9.05am BST9.05am BST
09:0509:05
SRB: Depositors are being protectedSRB: Depositors are being protected
Elke König, chair of Europe’s Single Resolution Board (which triggered Banco Popular’s rescue), says that the deal will protect the bank’s savers.Elke König, chair of Europe’s Single Resolution Board (which triggered Banco Popular’s rescue), says that the deal will protect the bank’s savers.
König also argues that the deal vindicates Europe’s efforts to avoid another financial crisis.König also argues that the deal vindicates Europe’s efforts to avoid another financial crisis.
“The decision taken today safeguards the depositors and critical functions of Banco Popular.“The decision taken today safeguards the depositors and critical functions of Banco Popular.
This shows that the tools given to resolution authorities after the crisis are effective to protect taxpayers’ money from bailing out banks”.This shows that the tools given to resolution authorities after the crisis are effective to protect taxpayers’ money from bailing out banks”.
Here’s the official statement:Here’s the official statement:
The Single Resolution Board adopts resolution decision for Banco PopularThe Single Resolution Board adopts resolution decision for Banco Popular