Editor’s note: This article was first published in November 2012. It is market commentary from 6 November 2012: the €1.20 share price, the 90% drop from the €16 high, the 65% year-to-date loss, the suspended dividend, the planned €2,500 million capital increase and the 10 November shareholders’ meeting.
Banco Popular has lost more than 90% from its highs (it peaked at €16) and more than 65% so far this year, and is trading today at around €1.20. The dividend has been suspended, and on top of that it plans a capital increase to raise €2,500 million, which is practically its entire market value, so the dilution of its shares will be brutal. There’s no worse outlook for a shareholder, but for anyone who isn’t a Banco Popular shareholder, the stock presents an excellent investment opportunity.
The bank’s current shareholders have only two options: sell their shares or take part in the capital increase. It’s no easy decision, especially considering that some have already lost 90%, and if they don’t take part in the increase, their returns will shrink even further. For non-shareholders, most research firms expect the new shares could start trading below €1; specifically, they put the price between €0.40 and €0.70. Some already claim that even at €0.80 it’s a medium-term bargain.
The increase could be at a ratio of 2.5 new shares for every old one, which, as we said, is an astonishing dilution. So if those outside the stock want to get in and have the chance to buy shares well below one euro (obviously, the lower the better), over a one- to three-year horizon they could make a killing (and even much sooner, thanks to speculative rebounds).
Supposedly, if this capital increase is finally approved, which we’ll know on 10 November (the date of the shareholders’ meeting), Banco Popular would be fully cleaned up by the end of the year.
We’ll probably never see it trading at €16 again, but buying shares in a price range of €0.40 to €0.80 will probably secure us a juicy return in the medium term.
Featured image: Nacho from Oviedo, España, CC BY 2.0, via Wikimedia Commons.
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