The European Commission remains cagey about how much Portugal’s taxpayers might have to inject into Novo Banco after it is transferred to Lone Star's vehicle, the unamusingly named Nani Holdings*, but admits that ‘in adverse circumstances’ this is exactly what will happen.
Far from a clean deal to offload the loss making 'bridge bank' to a new owner, Portugal’s hard-pressed taxpayers again will be expected to bolster Novo Banco’s capital to cover losses if an economic downturn affects the bank that was created when BES went under in August 2014.
In a statement issued from Brussels, "limited additional capital," was mentioned, to be made available only if "capital needs arise in severe adverse circumstances that can not be resolved by Lone Star or by other market operators."
When deciding whether to give the green light to the Lone Star deal, a deal agreed with the Bank of Portugal despite two multi-billion cash offers on the table, Brussels has looked at a standard restructuring and at a scenario of 'adverse conditions' where Portugal’s government will have to make more cash available due to the folly of the Resolution Fund is keeping 25% of Novo Banco's shares.
If there is another economic downturn or a collapse in property prices or any other circumstances considered ‘adverse’ by Brussels, Portugal's taxpayers could be called upon to inject more money into Novo Banco to guarantee minimum capital requirements and for it to avoid a new resolution process.
Today’s decision to approves the Lone Star restructuring plan for Novo Banco allows the sale to go ahead but a sub-clause approves possible state aid in ‘adverse’ situations.
Over the last few months, Brussels’ competition analysts have been in contact with the Portuguese government and representatives of Lone Star to ensure that the restructuring plan complies with European rules on state aid.
The plan is now approved and includes cost cutting measured, with Brussels remaining coy over the level of branch closures and job losses agreed with the Portuguese authorities.
On the revenue side, Brussels expects Novo Banco 'to ensure the profitability of its lending operations and ensure improvements in terms of risk management' - a tall order from a bank that has traded at a loss since it was created, even though it took on only the good parts of the old BES portfolio.
Vulture fund, Lone Star, is paying nothing for 75% of Novo Banco’s shares but has agreed to inject €1 billion in two tranches, €750 million right away and the remained in two year’s time, if it still owns the bank.
The Bank of Portugal’s governor, Carlos Costa, turned away two bids, said to have been in the region of €3 billion, for 100% of Novo Banco’s shares and has failed to come up with any sensible justification as to why he chose a vulture fund from the US to control only 75% one of Portugal’s largest financial entities, why he has left taxpayers exposed to further cash calls and why he did not take one of the cash offers for the business.
For those unclear about what Lone Star's approach is... "Lone Star’s investment approach focuses on leveraging long standing relationships with counterparties to source opportunities, a comprehensive bottom-up asset-based underwriting approach, a streamlined approval process, a dedicated asset management platform and the continual evaluation of exit strategies."
See also: 'Lone Star ditches Vilamoura World'
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*Nani Holdings is a Portuguese company headquartered in Parque das Nações, Lisbon, and was created on March 23rd, 2017 under the name of Cosmikcrown SGPS. On the 28th of that month, the day before the signing of the New Bank's purchase agreement with the Resolution Fund, the company was renamed Nani Holdings.
Initially, Nani Holdings had members of the ABBC law firm, which legally supports Lone Star. However, in June, the company was led by Tanya Sheridan, also a lawyer and vice president of Lone Star International Finance.