The US vulture fund, Lone Star, now is in ‘exclusive negotiations’ with the Bank of Portugal to buy Novo Banco, is confident about the future of the loss-making business and optimistic about the Portuguese economy.
Olivier Brahin, chairman of Lone Star Europe, said he is committed to reaching an agreement with the Bank of Portugal to support Novo Banco in a way that will benefit "its customers, employees, creditors and the Portuguese economy in general."
Brahin said that after a thorough analysis of the institution in recent months, Lone Star’s team is "aware of the importance of Novo Banco to the future of the Portuguese economy".
Lone Star confirms, in a statement issued on Monday, that the strategic plan for the Novo Banco includes maintaining the central focus of its activity as serving its customer base in Portugal, with emphasis on the business segment, and will keep on the current management team under the lawyer and former president of Portugal's railways, António Ramalho, who currently earns €23,500 a month at the bank.
"We look forward to working with the team of António Ramalho and the Novo Banco staff once we reach a final agreement with the Bank of Portugal," read Brahin’s statement.
"We are very optimistic about Portugal and the future of the country's economy, and it is for this reason that we seek to provide the capital, resources and knowledge necessary for Novo Banco to remain a strong pillar focused on the domestic market of the Portuguese banking system."
The Lone Star statement comes after the Bank of Portugal confirmed it now has moved to "a definitive phase of negotiations, under conditions of exclusivity" with the US company.
Finance Minister, Mário Centeno, admitted that the sale of Novo Banco may be a partial one, even though the sale prospectus states that "this is a 100% sale."
"There is also a possible second way of negotiation that does not involve the 100% sale of the bank. There are different routes that the Bank of Portugal has been following. We have to wait," said Centeno in Brussels today.
The minister insisted that there will be no State guarantees for Novo Banco’s non-performing loan book, an earlier condition laid down by Lone Star but later dropped.
Centeno said that the sale of the bank is ever-evolving and that today's decision by the Bank of Portugal to negotiate exclusively with Lone Star is "just one more step."
Centeno reiterated that the important thing is "to ensure the success of the transaction for financial stability, for the stability of the institution, but obviously also for the impact on public accounts."
On Sunday, the former PSD leader, Luís Marques Mendes, gave details on the negotiations, saying that Lone Star would only hold 65% of the capital, with 25% remaining in the hands of the Resolution Fund or the State, if Brussels did not accept the first solution.
This division is a mechanism to share the risks associated with the problem assets that Novo Banco holds.
The remaining 10% of the shares would be sold to large Portuguese companies.
As for the recapitalisation of Novo Banco, which is essential, Lone Star says it will put up €1,000 million to strengthen the bank and allow it to write down more of its ‘troubled assets.’
Should Lone Star win control of Novo Banco, questions will be raised in parliament as to the €4.9 billion shovelled into the bank on the say-so of the Mr Magoo of the banking world, Carlos Costa, at the Bank of Portugal.
A future activity that will not have escaped the Bank of Portugal's notice is Lone Star's opition of selling Novo Banco's bad debt to its parent company in the US.
Vulture Funds lack any serious regulation and are international in dimension. The absence of a high street presence, as well as the fact they acquired rather than gave the original loans, will allow Lone Star to act with almost total impunity when dealing with borrowers and with any stray politicians who try and dig into their affairs.
Olivier Brahin, chairman of Lone Star Europe, at this point will say anything to get the deal but he is in business to get quick returns of at least 20%, so is likely to leave the regulator gasping for breath as Lone Star does what it is best at: buying cheap, clearing bad debt, mortgaging assets, paying a series of large one-off dividends and selling out at a huge profit.
It should be interesting to watch professionals at work and the current chairman, António Ramalho, is predicted to be out within a short period of time.
