Santander is to buy rival banking group Banco Popular for a symbolic €1 in a deal backed by European regulators.
Banco Popular, Spain´s sixth-largest lender, has been teetering on the brink of collapse, weighed down by €37bn of non-performing property loans.
Spanish giant Santander announced it would raise €7bn through a rights issue to plug holes in Banco Popular´s balance sheet.
The rescue is being pushed by the Brussels-based Single Resolution Board (SRB), a body that was founded just over two years ago to deal with faltering banks while avoiding state bailouts.
Santander´s offer for Popular was agreed shortly after the SRB asked interested parties to submit bids for the ailing lender.
The European Central Bank confirmed that liquidity at Popular had deteriorated in recent days, to the extent that the lender would have soon defaulted on its debt obligations.
In an echo of the queues at many banks´ doors witnessed during the financial crisis, Popular customers have been voting with their feet, and their wallets.
As confidence has plummeted over recent weeks, with Popular struggling to find a buyer for the business itself, billions of euros are thought to have been withdrawn from customer accounts.
Shares in Banco Popular have plummeted by over 60% during the past few months as investor confidence has diminished. Indeed, the deal with Santander leaves Popular´s shareholders and junior bondholders with nothing.
Santander shares, meanwhile, dipped by around 1% after its fund-raising plans to shore up Popular´s balance sheet emerged. Year-to-date, Santander shares are up by around 22%, with the bank having reported strong first-quarter profits and issued upbeat guidance.
In the UK, a long-running fight between banking group RBS and shareholders reached a milestone on Wednesday as the vast majority agreed to settle the dispute.
Some 87% of shareholders in the 9,000 strong RBS Shareholders Action Group accepted a £200m settlement. The UK government was forced to bail out RBS in 2008; it was only in 2007 when the company had tapped shareholders for billions of pounds to fund its joint takeover of Netherlands-based rival RBS. To this day, the UK government still retains a 72% stake in RBS.