Banco Santander (SAN) announces that it has acquired Banco Popular (BPESF). The acquisition takes place following an auction conducted by the Single Resolution Board and FROB in which Santander was selected as the successful bidder, paying a notional consideration of EUR1. As part of the transaction Santander will complete a rights issue for a total amount of EUR7B. This will cover the capital and provisions required to strengthen Popular's balance sheet. Existing shareholders will be given preferential subscription rights. The rights issue is underwritten.

The combined business, which will operate under the Santander brand, will have a 25% market share in SME lending in Spain. The acquisition is expected to generate a return on investment of 13-14% in 2020, and an increase in EPS in 2019. The combined business will benefit from increased profitability with strong potential for further revenue growth. The expected cost synergies of close to EUR500M per year from 2020 will lead to efficiency ratios that are among the best in both Spain and Portugal. To bring Popular's provisions and capital in line with the rest of the Group, Santander will make additional provisions for non-performing assets of EUR$7.9B, including EUR7.2B for real estate. This will increase coverage for real estate assets and real estate non-performing loans from 45% to 69%, significantly above peer average.

The Group expects to reduce Popular's real estate exposure significantly as it has done at Banco Santander in recent years. Following completion of these actions, the impact on the Group's CET1 capital ratio is expected to be neutral, while the transaction will significantly enhance Santander's capacity to generate capital organically going forward. Santander maintains its commitment to increase its CET1 capital ratio to above 11% in 2018.

The combined entity will be led by the current management team of Santander Spain with Rami Aboukhair as CEO.