Privately owned Novo Banco is preparing to suck up €726.4 million from the Resolution Fund in 2019, taking full advantage of the soft deal negotiated by the Bank of Portugal that leaves the nation's banks and taxpayers funding the US-owned institution.
Novo Banco is 75% owned by 'vulture fund' Lone Star from Texas and run in Portugal by António Ramalho who has overseen €500 million in problem loan write-offs in the first half of 2018, despite the bank being set up with only the ‘good’ assets of Banco Espírito Santo which went bust in 2014.
Novo Banco will need further injections of capital from the State shareholder, the Resolution Fund, in 2019. The Resolution Fund takes in annual contributions from Portugal’s financial sector businesses but with support requirements of this size, the Treasury has to lend the Fund money from the public purse.
The 2019 figure has not been finalised but Novo Banco’s half-year accounts shows that at the end of June, the amount calculated as being receivable from the Resolution Fund in 2019, under the contingent capital mechanism, is €726.369 million.
This amount results from loans the bank has deemed 'unrecoverable' which therefore impact its capital ratios.
Since it was sold to Lone Star at the end of last year, Novo Banco already has drawn €791.7 million from the Resolution Fund which had to borrow the money from the Treasury. This hit the State deficit figures and will again do so next year.
In a recent interview with the Observador, António Ramalho commented that, "The bank still has a recovery to undergo and this recovery will naturally still entail costs."
Under the agreement with the Bank of Portugal’s, the Resolution Fund, which holds 25% of the capital, was left responsible for meeting future capital requirements resulting from the impact of losses on more problematic assets that were highlighted in the bank's balance sheet.
These dud loans to companies and individual investors were valued at €7.9 billion in June 2016 as part of the sales negotiation.
This has shrunk by the end of June to €4.9 billion, which means impairments of €3 billion have been written off.
In the first half of the year alone, these assets have fallen in value, i.e. they are not recoverable, by €500 million according to the bank’s accounts.
