Banco Santander announced a surprise €7.2 billion ($9.24 billion) rights issue to shore up its capital today and said it had postponed its planned asset sales due to poor market conditions.
Previously the bank had said it planned to sell its 31 per cent stake in oil refiner Cepsa as well as its Banco de Venezuela subsidiary.
The rights issue has been fully underwritten by a syndicate of banks led by Merrill Lynch and also including Bank of America and Credit Suisse, the Spanish bank said.
Santander, which had concerned some investors with a string of buys that some feared would dilute its core capital, said in a statement it was not planning more acquisitions and would postpone planned asset sales until market conditions improve.
"Banco Santander has always had a very clear approach to capital strength. That is why, although we are starting from a very strong position - our core (tier 1) capital (to risk-weighted assets) ratio at September 30th was 6.31 per cent - the group has raised its goal to 7 per cent in response to our higher expectations in the current economic environment," Chairman Emilio Botin said in the statement.
The bank said it would offer one new share for every four in circulation, or 1.6 billion new shares, at €4.5 per share to raise €7.2 billion.
Investors had not expected a rights issue from Santander, which has emerged not only relatively unscathed but bigger from the credit crunch, sweeping up the savings and the branch network of the UK's troubled Bradford & Bingley and bidding for the remaining 75 per cent of US bank Sovereign which it does not already own.
"The move is surprising as we were under the impression that they did not need capital," said one shareholder who asked not to be named.
"But we're not too concerned about it. They should have excess capital now, which puts them in the position to make further buys."
Santander's share price was down 3.84 per cent at €8.02 at 10.25am, when the Madrid market's IBEX-35 index was up 1.59 percent.
Other European banks had struggled with rights issues earlier in the financial crisis, with British banks RBS, HBOS, Bradford & Bingley and France's Natixis all suffering from investor reluctance to pour in more money.