How Spain's Zombie Bank Rescue Snares Bondholders: QuickTake Q&A

Banco Popular Espanol SA’s decade-old crisis is finally coming to an end. It’s being swallowed by Banco Santander SA, Spain’s biggest bank, in an agreement that rescues the lender’s customers and senior creditors at the expense of shareholders and junior bondholders. It’s the first real test of Europe’s post-crisis bank resolution rules.

Shareholders always lose when banks fail -- and this time is no different. The bank had a total market capitalization of 4 billion euros ($4.5 billion) at the start of the year; now, the entire bank is being forcibly acquired for just 1 euro. Bondholders with about 2 billion euros of junior notes are also losing everything. That’s the new normal when European banks fail.