SRB still holds most of the cards after Banco Popular shareholders’ partial victory


Louise Bowman
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The Single Resolution Board was wrong to wholly redact the Spanish bank’s valuation report but it will fight hard to keep its workings as opaque as possible.


On November 28, the Appeals Panel of the Single Resolution Board published its conclusions on the SRB resolution of Spain’s Banco Popular. The bank’s sale to Banco Santander prompted a record number of legal cases against the procedure and decision-making that led to the takeover.

A particularly contentious part of the disputes concerns SRB’s refusal to release an unredacted version of the valuation report prepared by Deloitte that backed its decision to declare the bank failing or likely to fail. It did this on the grounds that it could cause market instability.

The SRB argues that access to documents can be denied on the basis of Article 90(4) of the single resolution mechanism regulation, a position confirmed by its legal advisers Linklaters. Banco Popular shareholders argue that all data and information used in the valuation report were those of Banco Popular and therefore its shareholders were not third parties to which concerns over confidentiality could be applied.

The Appeals Panel ruling stated that it had “carefully reviewed the Valuation Report and finds that several data, information, valuations and predictions which are shown in the Valuation Report should not raise actual concerns of financial stability nor relate to confidential information of commercial interest for the Banco Popular or for the purchaser”.

It continued: “Several of these data, information, valuations and predictions as well as of the conclusions of the Valuation Report (where it shows, in summary, the valuer’s estimated range of economic value of the entity, including the ‘best estimate’ in that range) are, in the Appeal Panel’s view, of fundamental importance, albeit disclosed in a duly redacted form, to show why the Resolution Decision was adopted and why that particular resolution tool was preferable.”

'Too far-reaching'

It therefore described the SRB decision to deny access in full to the Valuation Report under Regulation 1049/2001 as too far-reaching.

The Panel did, however, conclude that there are “also appreciable data, information, valuations and predictions which do or may pose a threat to such protected interests and they should not be disclosed”.

The upshot is that, while the SRB must now partially disclose the details of the valuation report that contributed to its decision to wind up Banco Popular, it still retains a substantial degree of discretion over the information that will actually be released.

The Appeal Panel’s decision has implications for those investors seeking damages in the Banco Popular case, but it is more significant in what it reveals about the SRB’s stance on transparency.

“The positions they have taken are not based on the unique facts of the Banco Popular case,” says one source close to the situation. “The SRB are trying to set a benchmark for how they will operate going forward. The next time that a bank gets into trouble in Europe does the public have a right to know how the SRB decides which tools it will use? The SRB seems to believe that they don’t.”

The idea that the SRB can work in secrecy to reach decisions on how a bank should be treated in resolution does seem wrong. How is the European Parliament’s Committee on Economic and Monetary Affairs (ECON) supposed to hold the SRB accountable if its decisions are taken inside a black box? Putting the burden on the appellant to prove that there is a public interest in information being released seems to offer the body carte blanche in how it reaches its decisions.

The Appeals Panel ruling leaves the SRB with an almost unfettered ability to redact sections of the valuation report so it will be illuminating to see what is eventually released. If, as is likely, the shareholders suing the SRB are dissatisfied with the level of disclosure then their next port of call is likely to be the European Court of Justice.

There are important implications here for the transparency that the public can expect in any bank resolution, not just that of Banco Popular. Both sides seem to be digging in for a long fight.