UBS Warns: Spain’s ‘Most Italian Bank’ Runs Out of Options

The bank-bailout business rages on.
During the first week of 2017, Spain’s ‘most Italian bank’, Banco Popular, got off to a flying start as its stock outperformed all other major Spanish banks. By Jan 5th its shares had even crossed the 1-line for the first time in nearly a month. But Popular’s New Year fairy tale was not made to last.
Its upward momentum, if that’s the right term, was brought to a halt by a bombshell report from UBS that concludes that Popular’s stock, which already lost three-quarters of its value last year and is down over 90% since 2008, is still overvalued by 20%. In less than an hour, Popular’s shares were back under a euro. That’s life in the penny-stock lane.
According to the report, Popular has a provision deficit of 1.9 billion. In other words, it has nonperforming loans and other toxic assets on its books whose losses would amount to 1.9 billion. But it has not yet booked (or ‘recognized’) those losses. If it did finally recognize those losses, it could end up with a 2.4 billion capital gap. That’s the equivalent of roughly 60% of its current market cap.
The UBS analysts acknowledged that their previous forecast of the bank’s capacity to absorb loss provisions had been ‘too optimistic’, with the new estimates showing a lower coverage ratio (46% compared to the previous 50%) and capital ratio (10% instead of 10.8%).

This post was published at Wolf Street on Jan 11, 2017.