Portugal closes Novo Banco's access to funding after restructuring - ministry

Banco Espirito Santo SA em Liquidacao

13/02/2023 15:03

By Sergio Goncalves
       LISBON, Feb 13 (Reuters) - The successful completion in
December of Novo Banco's restructuring means Portugal's
fourth-largest lender will no longer request funds from the
country's Resolution Fund or the state, the finance ministry
said on Monday.
    The European Commission had agreed that the process
involving the bank that emerged from the ashes of the collapsed
Banco Espirito Santo in 2014 was over, a ministry statement
said.
    "This closes a very important stage for the stabilization of
the national financial system, successfully concluding the
process that guaranteed the viability of this important bank,"
it said.
    U.S. private equity fund Lone Star acquired 75% of Novo
Banco in 2017, with the sale contract stipulating that the
Resolution Fund should inject up to 3.89 billion euros ($4.16
billion) to cover losses on the disposal of some toxic assets
inherited from the collapsed BES.
    The fund ended up injecting less than the maximum amount
foreseen by the clause.
    The contract also contained a backstop mechanism under which
the state could be required to provide extraordinary support to
Novo Banco in extreme scenarios.
    The finance ministry said that with "the successful
completion of the restructuring" the contingent capital
mechanism will cease to function and it will no longer be
possible to activate the backstop mechanism.
    The Bank of Portugal said in a separate statement that the
restructuring of Novo Banco "and the contingent capitalization
agreement were essential for the bank's survival," preserving
its important role in the financing of the economy. 
    Since Lone Star bought its stake, Novo Banco has focused on
de-risking, closing subsidiaries abroad, offloading bad loans
and real estate under tough restructuring commitments agreed
with Brussels. Its nine-month net profit almost tripled to 428
million euros.
    The Resolution Fund, which owns 19.31% of Novo Banco, is
backed by all Portuguese banks which pay annual contributions to
finance it, and it can access loans from the state and banks.   
($1 = 0.9358 euros)
 (Reporting by Sergio Goncalves; Editing by Andrei Khalip)
 ((sergio.goncalves@thomsonreuters.com; +351213509204; Reuters
Messaging: sergio.goncalves.reuters.com@reuters.net))