(Repeats story from late Wednesday, no change to text)
* EU banks body worried Popular sale may fail - source
* Watchdog gives "early warning" on liquidation - source
* New regime to shutter European banks is untested
By Francesco Guarascio
BRUSSELS, May 31 One of Europe's top bank
watchdogs has warned European Union officials that Spain's Banco
Popular may need to be wound down if it fails to find a
buyer, an EU official told Reuters.
Elke Koenig, who chairs an EU body that winds down troubled
banks, recently issued an "early warning", the official said.
Koenig's Single Resolution Board (SRB) initially declined to
comment on Banco Popular, but following publication of the
Reuters story said it never issued warnings.
Such a move would highlight growing concerns about Spain's
sixth-largest bank, although there is no suggestion that winding
down Popular is inevitable.
Popular's problems come some five years after Madrid spent
more than 40 billion euros ($45 billion) rescuing lenders hit by
the financial crisis. The sector has since consolidated, leaving
just 14 banks out of 55 in 2008.
Popular, which has been unable to sell off 37 billion euros
of soured property loans quickly enough, is seeking a buyer
after Spanish Economy Minister Luis de Guindos ruled out a state
bailout. The bank says it could extend a deadline of June 10 for
"Koenig has said ... that the Single Resolution Board is
following the (Banco Popular) procedure with particular
attention with a view to a possible intervention," the EU
official said, adding the bank's merger bid "may be fruitless".
"General preparations are under way although no concrete
steps have yet been taken," a second source said.
In a statement issued after publication of the Reuters
story, the SRB said it could not confirm "the interpretations
regarding alleged quotes made by the chair of the SRB".
Popular's troubles, although isolated in Spain's largely
robust banking sector, could rattle investors.
If Popular were to run out of other options and be closed,
it could be the first case in Europe using new rules to impose
losses on bondholders. That could in turn make funding more
expensive for other Spanish banks, undermining one of the euro
zone's largest countries.
The European Central Bank declined to comment, while a Banco
Popular spokesman said it was working on several plans including
a merger, a capital hike and asset sales.
But the European watchdog fears these could prove difficult,
while the ECB, which supervises the bank, is also watching
closely, a third person said.
As head of the SRB, Koenig can push for the bank's
liquidation, but could face opposition in Spain in the same way
as Italy, which has grappled with similar problems, has resisted
measures such as closing a large bank.
The European regime to shut banks, introduced after the
financial crash, has yet to be used and Koenig would, in
practice, require ECB and European Commission backing, as well
as the tacit support of euro zone countries.
One euro zone official said that finance ministers had not
discussed any winding down of Popular. The bank could sell fresh
shares, although shareholders would balk at injecting further
money into a stock which has slid in recent years to a tiny
fraction of its earlier worth.
Spain's biggest bank Santander and state-owned
lender Bankia are seen as the most likely to step in
to save the lender and several bankers in Spain said the process
was still under way..
In the meantime, Popular continues to grapple with loans at
risk of non-payment, which amount to more than 40 percent of the
total credit it has given.
And it now has a capital cushion that is thin compared to
its peers. Its chairman, Emilio Saracho, has said it likely
needs more, after a multi-billion-euro loss last year.
If its situation deteriorates and European authorities
demand it be shut, Spain would face the possible imposition of
losses on bondholders.
That could make it harder and more expensive for Spanish
banks as well as the country itself to raise money. Some small
Spanish lenders plan to raise funds in coming months.
($1 = 0.8904 euros)
(Additional reporting by Jesus Aguado in Madrid; additional
reporting and writing by John O'Donnell; Editing by Alexander
Smith and Mark Potter)