Novo Banco’s US vulture fund owners are pushing their deal to the limit as the bank is to demand €1 billion from the Resolution Fund under the terms of the ruinous sales agreement signed by the Bank of Portugal.
The bank, led by António Ramalho, is preparing to present its annual results on March 1st, which will be accompanied by a demand for a further injection of capital from the Resolution Fund which, in turn, will have to borrow the money from the Treasury, i.e. Portugal’s taxpayers.
This cash is to compensate Novo Banco for the losses in the value of a set of assets that were identified as problematic at the time of handing 75% of the bank to the Lone Star fund.
The rules state that when the recognition of losses in these assets penalises the bank's capital ratios, the Resolution Fund (which owns 25% of the bank) has to inject money.
One problem is that the Resolution Fund can only access €850 million per year from the Treasury, so the €1 billion that is about to be demanded will pose a problem.
This means that the Resolution Fund will need to access the balance from Portugal’s banks which fund the institution.
Last year, the cash demand from Novo Banco was bad enough, at €792 million, €430 million of which had to be borrowed from taxpayers.
The sales agreement predicted that these cash injections would end up costing €3.89 billion, a value that the governor of the Bank of Portugal indicated would not be used in full but, as the years go by, becomes increasingly likely that it will.
António Ramalho warned in mid-January that the bank would need more capital from the Resolution Fund, which was no surprise, given the terms of the sale and the weight of toxic loans that poison the bank’s balance sheet.
António Ramalho said the latest bombshell €1 billion will make the bank "more efficient for the Portuguese financial system "and will better fulfill its role as a bank for Portugal’s companies."
Novo Banco, which was part of the Banco Espírito Santo banking empire, was rescued in the summer of 2014 and 75% of its shares later were handed to the US Lone Star fund. The remaining 25% of the company is owned by the Resolution Fund, managed by the Bank of Portugal whose mess this is.
Novo Banco, we were told, contained the 'good' assets from Banco Espírito Santo...
