June 15, 2017 / 8:56 PM / in 5 months

EU's Dijsselbloem praises 'successful' Banco Popular rescue

LUXEMBOURG (Reuters) - The sale of Banco Popular to Santander (SAN.MC) was a success, the head of euro zone finance ministers said on Thursday, dismissing criticism of a rescue that wiped out shareholders and junior bondholders of what was Spain’s sixth biggest bank.

Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem rings the bell as he chairs a eurozone finance ministers meeting in Brussels, Belgium May 22, 2017. REUTERS/Francois Lenoir

The overnight operation last week, triggered by a run on the bank that left it critically short of liquidity, was the first test for the European Union mechanism to wind-down failing lenders.

“The authorities involved in the resolution acted in a very swift manner ensuring a continuation of core functions with no resulting costs for the taxpayers and this is very good,” Jeroen Dijsselbloem told a news conference after a meeting of euro zone finance ministers that discussed Popular’s rescue.

Ministers were briefed on the operation by the European Central Bank and by Elke Koenig, who chairs the EU body to liquidate banks, the Single Resolution Board. The two bodies led the rescue of Popular.

No minister criticized the operation, as no “reasonable” alternative private solution was available and no public support was in sight, an EU official said reporting discussions among ministers.

Owners of Popular bonds lost some 2 billion euros but the Spanish financial market reacted calmly after the rescue, despite fears of possible disruption that had until then dissuaded authorities from using the new liquidation procedure.

The mechanism was adopted after the 2010-2012 euro zone debt crisis to reduce taxpayers costs by dictating losses on shareholders, bondholders and even uninsured depositors, if necessary.

Italy has used an exception to the new rules to rescue with public money Monte Paschi di Siena (BMPS.MI), the country’s fourth bank, and is negotiating with EU institutions a similar operation for two smaller regional banks from the Veneto.

Dijsselbloem, who has been one of the main architects of the new mechanism, said the resolution of Popular was “successful”.

“The mechanism has worked very well. Its goal is to create stability and protect depositors, and in that process protect taxpayers. All three of these goals were met,” he told reporters.

Reporting by Francesco Guarascio @fraguarascio; Editing by Alastair Macdonald

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