* Liquidity, capital under microscope ahead of results
* Issuer's bonds suffer across capital structure
By Alice Gledhill
LONDON, April 28 (IFR) - Banco Popular's Additional Tier 1
bonds plunged ahead of next Friday's first quarter earnings as
concerns around the bank's liquidity position compounded worries
over the state of its capital position.
Its €750m 8.25% perpetual non-call 2020s tumbled over five
points on Thursday to a cash price of 80, one of only a handful
of euro AT1 securities trading below par despite a strong rally
across the sector. Even after recovering to 82.4, they are bid
at their lowest level since last June.
Popular's AT1s nosedived in late January as it emerged the
bank was dipping into reserves to ensure it could pay coupons on
the debt, one of a number of recent damaging revelations.
Local press reports that Popular has suffered €6.4bn (8.6%)
of deposit outflows since September means its liquidity position
is also under scrutiny.
"Accelerating deposit outflows can shorten the amount of
time that regulators are willing to give banks to come up with a
capital action plan," said BNP Paribas analysts.
"It can also force regulators to put in place preventative
measures, such as the cancellation of deferrable coupons on
Coupon suspension was already a major risk given Banco
Popular's dangerously low capitalisation. The bank has forecast
a total capital ratio for the first quarter of 2017 of
11.70%-11.85%, putting it on the brink of breaching its 11.375%
supervisory review and evaluation process (SREP) requirement.
That buffer of around 40bp is equal to about €300m, Moody's
analysts said. The ratings agency downgraded Popular's sub debt
to Caa1 from B2 last Friday, and its senior to B1 from Ba2
"The distance to trigger [for AT1 coupons] is calculated
every quarter, and the buffer is getting thinner by the day,"
said Filippo Alloatti, a senior credit analyst at Hermes
Provisioning for a crippling stock of toxic assets - its NPA
ratio was 32% at year-end 2016 - has been a major drain on
capital, and analysts are now awaiting further guidance after
the bank's chairman promised action earlier this month.
"They need capital, either via an asset sale - though the
problem is everyone knows they're a forced seller - or via a
rights issue," Alloatti said.
Popular's total capital woes stem partly from a measly stock
of Tier 2, although a Popular spokesman told IFR in January that
it was under no pressure to issue.
The bank sounded investors out for a Tier 2 issue around the
end of 2015, according to Alloatti, but broader market
volatility thwarted issuance. A Tier 2 sale would now be too
little too, too late, said one banker.
"The idea that they could issue Tier 2 now to solve their
problems would be like putting a plaster on a broken leg," he
The Bank of Spain is said to have given Popular, a black
spot in an otherwise much rosier Spanish banking sector, until
the summer to come up with an action plan, the BNP Paribas
The AT1 rout has spread to covered bonds, among the safest
bonds that banks can sell. Popular's last public debt issue, a
€1.5bn 1% March 2022 covered bond, has widened almost 20bp since
Monday to 51bp over mid-swaps, a drastic move for that asset
The market will also be on alert for comments on disposals
and additional provisions. Popular said this month that an
internal audit had found the need for adjustments to the 2016
"Ultimately, this could be a merger/takeover story at the
right levels, so I'm also looking out for comments from the
other Spanish banks," another analyst said.
(Reporting by Alice Gledhill, editing by Helene Durand, Sudip