Novo Banco, the company created as the ‘good bank’ when Banco Espírito Santo went bust last August, has failed its European Central Bank 'stress test' and needs to find €1.4 billion in the next nine months.
The Bank of Portugal has announced that it immediately will start a new sale programme for Novo Banco in order to repay the €4.9 billion injected into the bank when it was established.
The last time Novo Banco was offered for sale, bids reached the dizzy heights of €1.3 billion and were rejected in exasperationby the Bank of Portugal Governor Carlos Costa.
In a statement released on Saturday, the Bank of Portugal reported that according to the results of the stress tests, Novo Banco was OK in the most likely scenario (Common Equity Tier 1 ratio of 8.24%, against a target of 8.0% or more), but failed the ‘adverse scenario’ test (CET1 ratio of 2.43% against a target of 5.5 % or above) which corresponds to a €1.398 billion deviation."
The Bank of Portugal, which manages the Resolution Fund, now has nine months to ensure this shortfall is corrected to show the bank has the capital ratios required to withstand financial shocks.
Novo Banco’s management under Stock da Cunha (pictured) already had started a strategic reorganisation and a major asset sale in anticipation of failing the stress test.
GNB Vida (formerly BES Vida) and the sale of 'other non-strategic holdings' have been announced to boost reserves while the bank is groomed for sale.
Three of the Resolution Fund's shareholders - BCP, BPI and Santander Totta - already have make it perfectly clear that they oppose boosting Novo Banco’s capital by being forced to shell out more money.
António Vieira Monteiro from Santander Totta said the recapitalisation of Novo Banco should be made through its restructuring as the state and the Resolution Fund’s shareholders (Portugal’s high street banks) are technically prevented from throwing more money at the problem.
Also, the president of BCP, Nuno Amado, argued that "it is not up to the resolution fund recapitalise Novo Banco" and that the bank needs to be restructured.
Fernando Ulrich of BPI said it was "totally irresponsible that the other banks should fund Novo Banco."
The Bank of Portugal, which famously failed to offload Novo Banco due to its ‘unquantifiable liabilities,’ has hired advisors who will immediately start to make informal contacts with potentially interested buyers for Novo Banco.
"The preparation of the new stage of the sales process for Novo Banco will be started immediately," now that there are no "factors of major uncertainty" which fouled up the previous sale process, admitted the Bank of Portugal.
In fact there are many ramaining uncertainties, including compensation payments to, among others, Goldman Sachs, a New Zealand pension fund and thousands of ripped off BES depositors.
In addition to selling off GNB Vida, Stock da Cunha needs to sell shareholdings in roads concessionaire Ascendi (40%), Banco Best (75%), various real estate assets including failed bulding developments, thousands of repossessed homes that lie empty, and probably Novo Banco's international operations in France and Cape Verde.
The Novo Banco restructuring plan that everyone is so keen on, really just involves closing branches and shedding staff. This plan will be revealed in the next few weeks and banking unions will oppose moves to change anything that puts its members out of a job.
The cash inflow from the sale of assets, when added to the savings from shutting branches and laying off staff, will determine whether the Resolution Fund shareholders will have to inject more capital.
