* Former chairman ousted over failure to clean up toxic assets
* His replacement reported to view merger as potential solution
* Further sector consolidation expected (Adds background, quotes from other bank CEOs and Bank of Spain)
By Angus Berwick and Jesús Aguado
MADRID, Dec 15 (Reuters) - Banco Popular’s incoming chairman does not have a mandate to sell the bank, its CEO said on Thursday after reports that outgoing Angel Ron’s replacement considered a merger as the solution to the Spanish lender’s financial woes amid calls for more sector consolidation.
Popular, regarded as the weak link of Spain’s banking sector, said on Dec. 1 that it would replace Ron with Emilio Saracho after shareholders rebelled over his failure to clean up 30 billion euros ($32 billion) in toxic assets.
Ron had long maintained that Popular was financially strong enough to remain independent. Bankers and analysts say his ousting could mark it out for a potential takeover and trigger another phase of consolidation in a sector that has been whittled down to 14 players from 55 since the financial crisis.
“Emilio Saracho does not have a mandate to do that, as far as I know,” CEO Pedro Larena told reporters at a banking conference.
Saracho, a JP Morgan Chase vice president, will take over at Banco Popular during the first quarter of 2017.
At the conference, which put much of the Spanish financial elite under one roof, bank heads and their regulators said that further consolidation is inevitable given the problems of low profitability amid record-low interest rates and fierce competition for a shrinking pool of loans.
“I think there is margin to keep advancing with the process of consolidation,” Bank of Spain Deputy Governor Fernando Restoy told reporters.
“At the moment we are in a process in which things are changing, and therefore financial institutions have to reflect on their strategy.”
Restoy also said that the Bank of Spain and the European Central Bank (ECB) would in the near future pay “special attention” to potential consolidation.
Before the crisis, which led to a 41.3 billion euro ($44.80 billion) restructuring of Spain’s banking industry, the volume of credit flowing from the banks to the economy was close to 2 trillion euros and the banks’ average profitability was 20 percent.
Average profitability is now a third of that and the volume of credit is 1.3 trillion euros, Bank of Spain data shows.
“Reflecting on our profitability has to make us think about how we can be profitable in a sustainable way in the long term, and that points to more consolidation,” Bankia CEO Jose Sevilla said at the event hosted by the IESE business school.
Reporting by Angus Berwick and Jesus Aguado; Editing by David Goodman