Brussels is not at all happy with the government’s proposed sale conditions for Novo Banco which sees the taxpayer retaining 25% of the bank’s shares.
The Finance Minister, Mário Centeno, (pictured) says there has been no formal decision from the European Central Bank about the Portuguese State hanging on to a quarter share in the loss-making bank, but insists that "there are conditions for an agreement."
Centeno has been waiting in trepidation all month for a decision from Brussels and already knows full well that the General Directorate of Competition is against the State maintaining a shareholding and that many in political opposition are just waiting for him to fall flat on his face.
At the beginning of March, Centeno assured the government that the Novo Banco sales process would be done and dusted in a couple of weeks and that he was only waiting for a green light from Brussels before announcing that Lone Star was the new majority shareholder. In this, he has failed.
The sale agreement model that Centeno is supporting has been cobbled together by an inexperienced negotiating team under the Bank of Portugal that sees the American fund getting its own way on most of the key points - certainly the agreed price of €750 million against a government target of €4.9 billion should have been cause for concern at the ministry but the more the minister says "€750 million," the less painful it sounds.
Centeno continues his quixotic quest and seems keen to sell off the bank for a song with the State keeping 25% of a bank with unquantified liabilities.
Mário Centeno rightly insisted that the State would not underwrite any future losses at Novo Banco, then rashly agreed to share the investment risk with the US fund, leaving government and the ECB scratching their heads as to what it was that the minister was trying to achieve.
The Minister of Finance has been out of his depth ever since agreeing that Lone Star was a good deal - it isn’t - and the way the sales process has been structured excludes late coming cash bids around the €3 billion mark.
At the end of February, when the sale process moved to an exclusive negotiation with Lone Star, the Prime Minister, António Costa, clarified that the State will not lose €3.9 billion as this sum would still be owed to the Resolution Fund. This fooled noone as earlier, more buoyant, statements from the PM has assured the public that it would get its money back.
Costa’s wafflesome statement that, "The government will only pronounce itself in a final resolution depending on the result obtained in the negotiations," was worthy of Sit Humphrey himself and leaves a question mark over the functionality of a government working with the Bank of Portugal whose governor is known to be economical with the truth and lacking grasp.
Costa insists that the sale can only go ahead if the three established rules are fulfilled: that the buyer keeps the bank running, that the bank is not broken up and sold off, and that the bank makes lots of loans to Small and Medium Enterprises ‘to ensure the stability of the financial system.’
These rules are no such thing and any new owner will be able to run the bank however it wants to. Lone Star is expert in buying undervalued assets, re-jigging the finances to its benefit, paying huge one-off dividends to itself based on sale and leaseback of assets and selling off the original purchase, whole or in parts, to other investors .
If the government thinks the US fund will behave any differently to normal operating procedure, it may be in for a nasty shock. Certainly, if Lone Star can get 75% of the bank for €750 million, there is plenty of leeway to make its own shareholders rich at the political expense of the current government whose negotiators have been outsmarted at every turn.
The government has called a meeting for the coming week with political party heads to explain the discontent from Brussels that threatens to block the deal. One option is that the 25% shareholding carries no voting rights, hardly an elegant solution but one that might allow the deal to be done as the government had pledged to the ECB that 100% of Novo Banco would be sold, not 75%.
Overall, this sale process again has been fumbled despite the negotiations being overseen by a former Secretary of State, Sérgio Monteiro, whose €25,000 a month salary raised eyebrows in parliament when announced. Add to this, the €15,000 month paid to the Bank of Portugal's governor and the costs of repeated failure appear to be high.
