The FINANCIAL — Spain's fifth-biggest bank Banco Popular will raise up to 2.5 billion euros ($3.2 billion) by issuing new stocks to boost its capital base rather than accepting bailout aid, it announced Monday.
Banco Popular said it would not need to draw on bailout funds from the eurozone and would raise the necessary capital itself, after a major audit last week showed it and six other Spanish banks needed tens of billions of euros.
"Banco Popular will strengthen its capital through a capital increase with preferential subscription rights for existing shareholders for an amount up to 2.5 billion euros," it said in a statement, adding it would also seek new investors.
The bank's shares plunged by more than 10 percent on the Madrid stock market when trading in them resumed after a brief suspension following the announcement.
The government on Friday unveiled the results of an independent audit of its banking sector, struggling with mountains of bad loans from the collapse of a building boom in 2008.
Of the 14 major banks audited, seven were found to need fresh capital to secure them against a possible worsening of economic conditions, including Banco Popular which auditors said needed 3.2 billion euros overall.
The lender said in a statement Monday that its new capital plan requires it to make 9.3 billion euros' worth of provisions on its balance sheet and the plan had the support of various investment banks. As EUbusiness announced, under the plan it expects to make profits of 547 million euros in 2013 and 1.4 billion in 2014, it said in a statement.
It suspended dividend payments for October and said it would "maintain and accelerate the sale of unproductive assets, managing real estate assets and doubtful credit separately".
Spain, the eurozone's fourth-biggest economy, secured a rescue loan in June of up to 100 billion euros from its eurozone partners for its banks.
Banco Popular said after Friday's audit results that it could raise the necessary capital on its own, however.
The audit by US consultancy Oliver Wyman said Spanish banks overall needed to raise an extra 59.3 billion euros of capital, or 53.7 billion euros after adjusting for the effect of certain mergers and fiscal procedures.
The government estimated it would need to ask for a lower amount, about 40 billion euros, from the bailout fund, since some of the banks could raise capital themselves.
The report was seen as potentially clearing the way for Spain's government to request a full sovereign bailout from eurozone rescue funds.