The sale of Novo Banco again has descended into farce. The preferred bidder, China’s Minsheng Group, is unable to obtain the necessary capital and guarantees due to China’s currency restrictions on outgoing funds.
The chosen bidder does not have the funds, leaving the Bank of Portugal’s sale process in disarray with the bidding process due to end on January 4th, 2017.
Minsheng signed an agreement with the Bank of Portugal’s and then had a week to present 'proof of funds,' which it has failed to do.
The Bank of Portugal has provided a short extension so that the Chinese financial holding company, led by Sing Wang, will be able to provide proof of funds as the
Minsheng Group’s proposal is the one that best guarantees keeping Novo Banco much as it is now, with most jobs intact.
The Chinese candidate will increase Novo Banco’s capital by €750 million to secure over 50% of the bank’s shares. The Bank of Portugal then has to attract investors for the remaining stock currently held by the Resolution Fund - hardly an ideal financial deal but the socialist government is wary of any scenario that involves widespread job losses.
Sing Wang and his Minsheng team have been in Portugal all week and will spend Christmas and next week in the capital attempting to secure the deal.
Meanwhile, the Chinese yuan has hit the lowest level in the past eight years and reserves have dwindled sharply because of China’s efforts to support its currency which continues to slide against the dollar. The currency restrictions are likely to become tighter, rather than easier to work around.
If the guarantees come in on time, two tranches of funds will be needed in early 2017 to ensure Novo Banco’s capital ratios are in order. The backdrop is that the bank will be liquidated if a buyer cannot be found by August, 2017 and should Minsheng be forced to withdraw, liquidation will be the likely option.
Minsheng’s managers are trying to get support from Haitong Bank by way of a bridging loan but how the Bank of Portugal will react to a buyer which needs to borrow the money to buy Novo Banco, can only be guessed at.
Haitong Bank, now led by Hiroki Miyazato after José Maria Ricciardi’s sudden departure earlier this month, has requested "some time to respond to Minsheng's request for support" but time is running out.
An inflow of €750 million from Minsheng, should it ever arrive, will be nowhere near the €4.9 billion of capital pumped into Novo Banco from the Resolution Fund. The Bank of Portugal needs €4.9 billion to break even on the Novo Banco deal, a scenario that has never been likely despite the central bank's governor, Carlos Costa, famously speculating that the deal might even make a profit for the taxpayer.
Minsheng's proposed acquisition of Novo Banco was advised and brokered by Haitong Bank, but when it came time to prove Minsheng has the funds for the purchase, Haitong Bank withdrew from the process.
Portuguese banks are said technically still to be in the sale process and the US fund Lone Star has offered €750 million with another €750 million later but the State has demanded an €8 billion guarantee from the Americans.
It is bad enough that the Bank of Portugal’s ‘rescue’ of Banco Espírito Santo, from whcih Novo Banco was created in August 2014, is likely to lose around €4 billion, but the current muddle being overseen by former Secretary of State, Sérgio '€25,000 a month' Monteiro, is a further example of the Bank of Portugal’s lack of finesse in management, negotiation, public relations and deal making.
