02 June 2017 by lberuti
What made Banco Popular Espanol so unpopular? “Real estate” is the short answer. Its balance sheet is still laden with toxic property assets. The bank has already been forced to raise new capital from shareholders three times in the last five years, and in April it said it would need to raise more or consider a corporate transaction. The admission caused turmoil in Spain’s banking industry, which wants to think its real estate woes are a thing of the past. So even though Popular is not a member of any credit index, it has been one of the main drivers of the price action of iTraxx Financials Senior and Subordinated indices over the last few weeks, since the French presidential election is out of the way. With Italian financial institutions which suffered this week from the prospect of general elections held early in September, Spanish banks have massively underperformed the rest of the market. Their poor price action explains the divergence of iTraxx Financials Senior (ITXES) and iTraxx Main (ITXEB). The spread between the 2 indices have gone from as tight as 3bps three weeks ago to more than 8bps – ITXES and ITXEB closed at 70.25bps and 61.5bps respectively - at the close tonight.