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BANKING

Santander stronger after buyout but toxic assets threaten

Santander, the eurozone's largest bank, is expected to come out stronger from its rescue of smaller Spanish rival Banco Popular, though job cuts, "toxic" assets and legal challenges by disgruntled shareholders may make the process bumpy, analysts say.

Published: 9 June 2017 09:19 CEST
Santander stronger after buyout but toxic assets threaten

By paying just a symbolic euro for Popular, Santander becomes “Spain's biggest bank” in terms of market share, said its president Ana Botin on Wednesday.

That day, the European Central Bank (ECB) announced Banco Popular was “failing or likely to fail” and would be sold to Santander — the first time such a decision has been taken since the ECB took over the role of Europe's banking supervisory authority in 2014.

Santander may have been the eurozone's first bank in market capitalisation and may have made a six-billion-euro ($6.7-billion) profit last year, but it was still only the third lender in its own country in terms of market share.   

Its main markets are Brazil and the United Kingdom.

But the buyout of Popular allows Santander to gain close to 20 percent of the loan and deposit market in Spain. It also becomes the biggest private bank in Portugal, where its rival was established.

Popular is also liked by small and medium-sized companies, which means Santander will now control a quarter of a market that is just lifting off again after the financial crisis, with three percent growth expected in Spain this year.

That is why Botin promised her shareholders that the buyout would be “good” for them, suggesting a 13 to 14 percent return on investment from 2020 and confirming other, previously-announced financial targets in the coming years. 

Job cuts?

For now, investors appear to be convinced.

Shares in Santander rose more than five percent late Thursday afternoon on Spain's main Ibex 35 index, all but ignoring the fact that the bank will have to issue seven billion euros worth of new shares to finance the operation.   

While Santander is only paying one euro for Popular, it will need billions to clean up the failed bank's balance sheet.   

“It's a good operation financially and strategically” for Santander, according to analysts at Link Securities.

But they warned against the challenges involved in the absorption process, including “keeping the clients” of Popular, whose brand will eventually disappear entirely.

To keep its promises to shareholders, Santander is banking on “economies of scale” and the “optimisation of the network of (bank) branches.”   

This has sparked fears that branches will be closed and jobs lost on top of the 2,600 posts already cut by Popular and 2,500 by Santander, according to UGT, one of Spain's leading unions.

Santander's director general on Thursday promised “continuity” for staff at Popular, without giving more details. The bank estimates that restructuring costs will come in at €1.3 billion.

Toxic assets

Aside from possible job cuts, Banco Santander will also have to get rid of Popular's infamous toxic assets it inherited during the crisis — property taken from individuals or developers unable to reimburse their loans — which precipitated its downfall.

Buyers still remain scarce, but Santander will have to manage to sell them off.

Such is the number of “toxic” flats, offices and plots of land that Santander has provisioned 7.9 billion euros to maintain its financial viability in the process.

Botin is banking on the recovery of the real estate market, and her bank's own experience in the matter.

In five years, Santander reduced its own portfolio of toxic assets by 60 percent, thanks to huge price cuts.

Last, but not least, Santander could be hit by legal challenges by shareholders who invested in Popular and lost all their money in the buyout.   

Lawyers and consumer associations are mobilised to ask for compensation, judging the sale process suspiciously quick and opaque.   

On Thursday, the association of minority shareholders filed an official complaint to anti-corruption prosecutors in Spain's National Court, which deals with major graft issues, for “a possible offence against the market and consumers.”

By Emmanuelle Michel / AFP

BANKING

Card over cash? Why Germany is seeing a new payment preference

Cash has long been king in Germany, with many smaller retailers refusing to join the rest of the world in adopting contactless payment systems. But card-based payments are on the rise, as recent stats about Girocard use reveal.

Published: 13 February 2024 12:31 CET
Card over cash? Why Germany is seeing a new payment preference

Germany has long been a very cash-based country, occasionally to the dismay of frustrated tourists at the Döner shop.

A few German phrases express the people’s love of physical money. There’s ‘only cash is true’ – Nur Bares ist Wahres. Or Bargeld lacht, literally meaning cash laughs, but used to imply that cash is what’s wanted, similar to ‘cash is king’ in English.

But the classic German preference for cash appears to be evolving, as the use of girocards is growing, even for small transactions.

How are girocards being used?

Girocard, an ATM and debit card service offered by German Banks, was designed to allow customers to use virtually all German ATMs and, increasingly, to make purchases at businesses.

READ ALSO: Ask an expert – Why is cash still so popular in Germany, and is it changing?

Last year, consumers in Germany used their Girocard more often than ever before for cashless payments. A total of €7.48 billion payment transactions with the plastic card were counted – 11.5 percent more than in the previous record year 2022, according to figures published by the Frankfurt-based institution Euro Card Systems.

Whether at the bakery, petrol station or supermarket, customers are increasingly pulling out their cards at the checkout, even for smaller amounts. As a result, the average amount paid with the Girocard fell from €42.34 to €40.69 within a year. 

The rise of card payments in Germany

Contactless payment, which is possible with girocards and credit cards that have an NFC chip, got a boost during the Covid pandemic, as retailers promoted it for hygiene reasons. 

But the use of card payments has continued to grow in Germany since then, boosted partly by the increasing use of girocards.

Promoting the use of girocards, some German banks have expanded their cards’ functions: Sparkassen, Volksbanken, or Raiffeisenbanken offer girocards for the digital wallet, for example.

Banks want to continue upgrading the payment card with further applications. For example, a project is being tested which would add an age verification function to girocards that would be useful when a customer is buying cigarettes.

On the retail side, it’s clear why the Girocard is preferred to other debit options.

“We see that debit cards from international providers cost up to four times more,” Ulrich Binnebößel, Head of the Payment Systems & Logistics Department at the German Retail Association (HDE) told DPA.

What’s the difference between the Girocard and other debit?

The Girocard is a strictly German phenomenon. It can be seen as the latest iteration of the EC card, which was created to consolidate payment systems following the unification of former East and West Germany.

In 1991 different debit card systems, including Eurocheque guarantee cards from former West Germany and Geldkarte ATMs from former East Germany, were unified into Eurocheque cards.

Then in 2001, the Eurocheque system was disbanded, but German banks continued to use the EC logo for “electronic cash’” cards, or EC cards. In 2007, the German Banking Industry Committee introduced Girocard as a common name for electronic cash and the German ATM network.

Girocards are only issued and accepted in Germany, so if you want to get one of your own, you’ll have to join a German bank, and shell out those notorious German banking fees.

READ ALSO: Why it’s almost impossible to find a free bank account in Germany

Alternatively, you can get by with internationally accepted debit cards provided by a bank in your home country, or otherwise by joining an app-based European banking service like N26. 

But be warned, without the Girocard in hand, at some smaller retailers you may be told, “Leider nur Bargeld oder EC-Karte.”

With reporting by DPA

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