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Banco Popular to raise 679 mln euros to boost capital

Source: Reuters - Tue 16th Nov 2010

Spanish retail lender Banco Popular is raising up to 679 million euros through a combined capital hike and convertible bond issue to shore up its capital ahead of stricter global rules.

Popular, like most Spanish banks, is fighting squeezed margins as income on loans wanes in a low interest rate environment and the cost of funding rises on wholesale markets and through higher rates paid on deposit accounts.

After both operations, Popular's core capital will rise to 9.28-9.39% from 8.66% at end-September, well within the comfort zone stipulated by new rules on capital from international regulators in Basel, Switzerland.

"The aim of both operations is to reinforce solvency ahead of the new Basel III challenges" the bank said on Tuesday.

One analyst said the capital raising was a surprise, as Popular, although exposed to Spain's deteriorating property sector, was one of the best-capitalised in the sector.

"This may raise some concerns regarding possible write-downs at the banks' books and could lead to negative cross readings for the sector" said BPI bank analyst Carlos Peixoto.

Shares in the bank traded down as much as 1.6% before recovering to be 0.67% lower at 4.3 euros per shares by 0836 GMT. Spanish banks overall were down 1.3%.

Popular's French partner, Credit Mutuel-CIC, will take a 5% stake in Popular as part of the operation, in a move agreed in June.

Popular and Credit Mutuel-CIC said in June they would create a new Spanish bank and planned to participate in Spain's financial sector restructuring after a government-driven consolidation of Spain's network of unlisted savings banks.

The three-year convertible bond issue is 400 million euros with an option to increase up to 500 million, with a maturity of 3 years and an annual yield of 8% to be paid quarterly.

The bank is also selling around 41 million shares at 4.3 euros per share.

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