The well endowed Chinese insurer Anbang has slapped a €3.5 billion offer on the table to buy Novo Banco.
However there are conditions. The company is insisting on a discount if Novo Banco needs a capital increase greater than has been suggested by the Bank of Portugal.
If the deal goes through at the full price, which is looking increasingly unlikely, the resolution fund will be left with a massive loss of €1.4 billion.
The Bank of Portugal is still in negotiations with the Chinese but if these fail, next on the list is the US venture capital fund, Apollo.
Anbang’s offer of just under €3.5 billion for Novo Banco was sufficient to get it an exclusive place at the table but if the next pan-European ‘stress test’ shows that Novo Banco is under-capitalised, the Chinese want to deduct any further capital increase from their offer.
Anbang’s proposal already includes a strengthening of Novo Banco’s capital by €1 billion but it now wants to see what the stress test results show.
The Bank of Portugal and the Government are desperate to close the file by the end of August. The Minister of the Presidency, Marques Guedes, has already said that the Council of Ministers want "the process to be concluded as soon as possible."
At the non-discounted value, the resolution fund injection of €4.9 billion into Novo Banco will show a loss of around €1.4 billion.
When BES went bust last August, the state lent €3.9 billion of taxpayers’ money to the resolution fund which now is the sole shareholder of Novo Banco.
Angbang appears solvent and trouble free, unlike the third contender on the shortlist, Fosun which did not make the grade at a time when its reputation for probity was under question in China due to a bent property deal.
Tha Bank of Portugal can re-run the sale process if it choses to do so, but governor Carlos Costa is in need of some good news to lift his suillied reputation from the 'less than adequate' folder.
How a billion plus loss will be handled by the government remains to be seen. The treasury and executive both have dedicated their time to putting as much space as possoble between themselves and the problem but a loss of this magnitude will be a political gift to the opposition with a general election coming up this autumn.
Comments
As the process is being scrutinised by the Central European Bank. Who will also want to know the results of the forthcoming stress tests. If done today the Bank would clearly fail as it has so much tied up in non-performing loans. And forthcoming legal cases.