Spain's Banco Popular is facing a cash crunch and is likely to fail, declared the European Central Bank (ECB) on Wednesday, which also announced that the embattled lender will be acquired by its larger peer, Banco Santander, as part of its rescue plan.
"The significant deterioration of the liquidity situation of the bank in recent days led to a determination that the entity would have, in the near future, been unable to pay its debts or other liabilities as they fell due," announced the ECB in statement Wednesday morning, adding that its Single Resolution Board (SRB) had undertaken a resolution scheme which included the Santander acquisition of Banco Popular for the nominal sum of one euro ($1.13).
Santander is set to launch a rights issue to raise 7 billion euros ($7.89 billion) to support the buyout and the subsequent shoring up of its junior peer's balance sheet as part of the 7.9 billion euros Santander is setting aside to cover the target's non-performing assets. Shares of Santander slipped 2.5 percent as European markets opened on Wednesday.
The ECB is absolutely right to undertake this measure, Bob Parker, investment committee member at Quilvest Wealth Management, told CNBC on Wednesday.
"Banco Popular was the one exception to the successful tidy up of the Spanish banking system. And that's why this news on Banco Popular I think was inevitable. It's been under pressure," he opined.