Those affected by the Banco Popular resolution who received the Santander loyalty bonus at the end of 2017 and who have maintained it to date are in luck: not only do they not lose money but they earn more than the shareholders of the entity chaired by Ana Botín since then. Seven years after the entity’s intervention – this Friday marks the fateful anniversary – and its subsequent sale to Banco Santander for one euro, the holders of these bonds have since received a 1% annual coupon payable every quarter. Compared to them, Santander shareholders have achieved an annualized return of 0.81% in this same time, including net dividends.
Much greater is the potential profit of those more intrepid investors who chose to buy Santander loyalty bonds on the secondary market in the hardest moments of the pandemic, when these reached a price of 70.525% of the nominal value (compared to 78% with the that they started trading, that is, when they started trading the market was only willing to pay 78 euros for every 100). These would have pocketed that 1% annual interest plus 38.6%, given that currently loyalty bonds are trading at 97.733% of their nominal value, reaching maximum levels.
Since Popular’s intervention, Santander’s stock has accumulated a decline of 13.3% – a decline that reached much greater during the worst of the pandemic. Now, including the net dividends paid by the entity in this period, the return rises to 5.8%, which implies an annualized 0.81%.
The bank’s resolution caused Popular’s 300,000 shareholders to lose all their money. Santander chose to compensate some of them with these loyalty bonuses. They were delivered free of charge to those investors who had attended Popular’s last capital increase for 2,500 million euros – between May 26 and June 21, 2016 – and to those who purchased subordinated obligations in the issues of 29 July and October 14, 2011: about 115,000, of which only about 100,000 were accepted. Those who chose to receive these bonuses agreed to desist from any further attempts to claim. Santander thus tried to compensate small investors, offering up to 100% of their investment to those who had invested less than 100,000 euros.
Among the largest holders of this debt issue are, according to Bloomberg data, fixed income vehicles managed by Renta 4 and Tikehau, followed by others from Rathbone Brothers, Julius Baer or Bestinver.
Loyalty bonds are perpetual securities, although Santander can fully amortize them starting in the seventh year, that is, this month of December. According to the issuance prospectus, if the entity chooses to redeem them in December, the client will receive 100% of the nominal value plus the coupons received annually. However, if you choose not to do so, you will have to pay a return equivalent to the midswap for five years – the risk-free interest rate for that term, which currently stands at 2.898% – plus 594.7 basis points (5.947%). That is, 8.845%, above the 6.875% coupon that BBVA paid this week for placing 750 million in coconuts. The truth is that this debt is the same as the so-called coconuts: contingently convertible bonds that are transformed into shares if Santander’s maximum quality capital ratio (CET1) falls below 5.125%. This is a product that is sold exclusively among institutional investors, despite the fact that these bonds were distributed among individuals, which caused warnings to be included about the complexity and risk of the product.
The entity indicated at the time that its intention was to amortize them at 100% of the nominal value no later than December 2024, a criterion that, if maintained, would imply that the entity previously requested authorization from the European Central Bank (ECB). Market sources consider that the logical thing would be for Santander to amortize these bonds at par, although they also point out that at a commercial level, and especially for small holders, it could be in the entity’s interest to maintain them at a time when Returns on target performance funds and deposits tend to go down.
Not all investors who attended Popular’s latest expansion nor those who acquired subordinated debt were able to request the loyalty bonds. Those who invested between 100 and 100,000 euros received 100% compensation; Up to 75% were those who invested up to 500,000 euros, a percentage that dropped to 50% for those up to one million euros and from one million onwards they received no compensation of any kind. Of course, the distribution was carried out in sections: those who invested 250,000 euros received 100% of the first 100,000 euros and 75% of the remaining 150,000. In total, they were compensated with 212,500 euros.
Popular’s open fronts
The minority shareholders of Banco Popular harmed by the collapse of the entity are beginning to exhaust avenues to obtain compensation. The latest ruling by the European justice system endorsing the resolution process has caused discouragement in a large part of these investors, who have given up continuing to fight in the courts. In November 2023, the General Court of the European Union (TGEU) affirmed that the process carried out by the Single Resolution Board (SRB) did not have extraordinary consequences for the shareholders, since they received the same treatment as if the liquidation were would have been done through a normal and ordinary process. This ruling can be appealed before the Court of Justice of the European Union (CJEU), although the defense of the minorities decided not to use more efforts before the highest European judicial instance.
Thus, the focus is on the National Court, where hundreds of investors who participated in the capital increase of May 2006 have demanded compensation for the losses caused by this investment made just one year before the disappearance of Banco Popular. The well-known Popular case is now in an intermediate phase in which the appeals raised by the executives of the leadership led by Ángel Ron who have been prosecuted for fraud are being resolved, while the accusations (including the Anti-Corruption Prosecutor’s Office) must present their provisional requests for conviction.
The investigating judge José Luis Calama proposed to judge, last March, the former president of Popular Ángel Ron and a dozen former directors when he understood that the shareholders participated in said capital increase “deceived” because the financial statements of that year and 2015 “they did not reflect the true image of the balance sheet or the assets.” In this sense, the magistrate proposed also judging PwC, since he audited the entity’s accounts and did not indicate any reservations.
Banco Santander may be involved in this legal case as a possible subsidiary civil liability of Banco Santander, as successor to Popular’s business. Although, in May 2022, the CJEU closed the door for investors to make some type of claim to Santander for the losses caused by said capital increase, Judge Calama has postponed the decision on the procedural status of the entity led by Ana Botín until the issuance of the order opening the oral trial.
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