The Bank of Portugal has confirmed that the handing over of Novo Banco will take place "within the deadlines foreseen" thus leaving open a completion date which has never been fixed.
The latest upset to the lengthy and fraught handover, with 75% of Novo Banco due to be given away to the notorious US vulture fund, Lone Star, is Banco Comercial Português which has filed a lawsuit over the call on its own funds to support Novo Banco should it's assets turn from gold to dust after the transfer.
BCP has spotted that its shareholders, and those of each of Portugal’s 50 banks, will be expected to fund up to €3.9 billion of future losses at Novo Banco.
This is the amount that the Resolution Fund, for which membership is mandatory and expensive, has to be prepared to stump up should things get worse at loss making Novo Banco - the bank that was created by the Bank of Portugal when the 'lightly regulated' BES crashed and burned in August 2014.
"Having taken note of BCP's communication, the Bank of Portugal stresses that there is no change in the procedure for the sale of the Novo Banco, namely in the agreement signed with Lone Star and in the agreed timetable," reads a statement released today by the Bank of Portugal which insists on calling this process a 'sale' when no money is being handed over.
There may be 'no change in the procedure,' but yet another legal challenge to the Lone Star deal is highly uncomfortable for the Bank of Portugal's governor, Carlos Costa (pictured, hard at work).
The BCP filing in the administrative court "is not intended to suspend or halt the sale process," says BCP's Armando Vara, but it may well do so with so much at stake.
On Friday 1st September, BCP announced in a statement to the Securities Market Commission that it had “made a filing in court for a legal assessment of the mandatory capitalisation by the Resolution Fund in the sale process of Novo Banco to Lone Star.”
BCP wants to have a legal judgment on the rights and wrongs of it, and Portugal's other banks, having to make provision for Novo Banco’s future problems.
At issue is the fact that in the agreement for the sale of 75% of Novo Banco to Lone Star, the Resolution Fund could be called to inject up to €3.89 billion into Novo Banco for losses from 'toxic' assets (read: 'real estate losses') and losses from the disposal of non-strategic operations.
Ultimately, BCP wants to limit the Resolution Fund's guarantee covering Novo Banco’s exposure and wants taxpayers to bear these future costs.
In July, at the presentation of BCP’s positive first-half results, the bank’s president said that the cost of continually topping up the Resolution Fund, "is already beyond what is reasonable," having been forces to stump up €90 million in the first half of 2017 for Portuguese and EU guarantee funds, of which €30 million had gone to the Resolution Fund to help cover the financial mess at BES and Banif.
The Resolution Fund already is operating way beyond its means with the State having lent it €4 billion of taxpayers’ money to cover Banif's and the BES/Novo Banco so-called ‘rescues.’
The Fund was meant to be repaid when Novo Banco was sold off - this was the pie-in-the-sky strategy promulgated by Carlos ‘Mr Magoo’ Costa, but far from being repaid, the Fund is being forced to expose itself to a potential €3.9 billion in additional liabilities.
The latest embarrassing fudge from Costa, wrong on so many levels, is that Portugal’s banks may pay off this involuntary loan from the State by 2046, using the proceeds from their annual contributions.
The Novo Banco agreement signed on March 31st this year between the Resolution Fund (sole shareholder of Novo Banco) and Lone Star, provides for 75% of the bank to be handed over at zero cost, with the Resolution Fund keeping 25% along with the resulting exposure to a pile of bad debts.
Lone Star is paying nothing for Novo Banco, (Carlos Costa refused to negotiate two first round offers of around €3 billion for the business,) but has agreed to inject €1 billion into Novo Banco, €750 million when the deal is completed and the other €250 million by 2020. These two tranches do not have to be Lone Star funds and it is not yet clear what happens if Lone Star can't raise the capital.
The completion of the Novo Banco give away is subject to three conditions, namely the success of its own debt repurchase scheme in which Novo Banco expects to save €500 million by ripping-off creditors by repurchasing bonds below face value (prices as low as 9.75 cents per euro have been suggested). This scheme has yet to be agreed by bondholders - which if they do agree will be the equivalent of turkeys voting for an early Christmas.
In the background is Goldman Sachs whose legal action has yet to be heard. This US financial behemoth seeks to recover the loans that Bank of Portugal’s Carlos Costa wiped out by shifting bonds from Novo Banco to the defunct BES, thus pretty much writing them off.
A group of international investors seek redress, including the New Zealand State pension fund, Pimco and BlackRock - hardly considered tiddlers in the investment world.
The Novo Banco transfer process is in as much a mess as ever with the blame for the serial mishandling lying at Carlos Costa’s feet.
Long out of his depth in a role in which he failed to regulate the sector and then failed to find sensible solutions for the banks that collapsed on his watch, the Novo Banco give-away to a US asset stripper must be Carlos Costa's final action before his EC overseers lose patience and cut him loose.
