Novo Banco is selling off €1.75 billion of bad debt, or ‘non-performing loans’ in bank speak.
The ailing bank, now controlled by US vulture fund, Lone Star, has begun a process to enable interested parties to place October bids for two tranches of securities (sic) that represent the biggest ever sale of dud assets in Portugal’s history.
The first package is of €550 million of non-performing loans to 54 unnamed large companies, while the second tranche of €1.2 billion is from a collection of poor lending decisions to over 62,000 companies.
Novo Banco, with advice from KPMG and Morgan Stanley, already is, ‘contacting potential investors.’
Novo Banco’s has a cupboard full of bad debt even though, when the bank was created as part of the Bank of Portugal’s misnamed ‘resolution’ for the Banco Espírito Santo collapse in 2014, it was meant to be loaded only with the good parts of BES.
According to Novo Banco’s first half accounts this year, the value of these dud assets amounted to €30.7 billion, a shocking 28.7% of the total amount of money out on loan by the bank.
In the first half of 2018, Novo Banco reported losses of €231 million after a 2017 year-end loss of €1.395 billion. This forced the Resolution Fund to inject about €800 million into the bank's capital, with unwitting taxpayers lending around €400 million to the Fund which had run out of money.
Taxpayer liability is what this game is all about as Novo Banco’s US owners have an opportunity to ditch this mountain of debt in the knowledge that, if Novo Banco’s capital ratios fall to unacceptable levels, the Resolution Fund will have to stump up yet more money, or, when it can’t, the taxpayer will step in with more funds to prop up the Resolution Fund.
This capital cushion is provided by Portugal's high street banks, which pay into the Resolution Fund, and taxpayers, when the Fund runs short of the necessary, is part of the one-sided deal done between the Bank of Portugal and Lone Star.
Portugal pledged to support the inevitably poor results of Novo Banco while 75% of the bank’s shares were transferred to Lone Star for a token amount, thus showing no return at all on the billions used to set up Novo Banco in the first place.
