The Bank of Portugal and the Chinese insurance giant, Anbang have failed to come to any sort of acceptable agreement over the sale of Novo Banco, the good part of BES created amid the turmoil of last August.
Anbang offered €3.5 billion but wanted indemnity against a closet full of skeletons including being reimbursed if Novo Banco needs recapitalising, which Santander reckons it does - to the tune of €2 billion.
Bids for Novo Banco are hampered by buyers' concerns about legal challenges, including one from Goldman Sachs over the return of a loan and several from holders of commercial paper issued by the Espirito Santo group sold in BES branches to customers.
The Bank of Portugal failed to move the Anbang negotiating team into a position where both sides felt they had got a good deal and the announcement on Tuesday 1st September that the Bank of Portugal now is to start talks first with Fosun and maybe later with Apollo is laden with pessimism as to whether a deal ever can be cut that gets anywhere near the €4.9 billion thrown into the BES rescue.
"After the decision of the Bank of Portugal, Fosun would like to reaffirm its strong commitment to Portugal, where we see our long-term development. We will continue to pay attention to new investment opportunities," said a company spokesman, quoted on Tuesday by Reuters.
Officially, the Bank of Portugal always referred to the three potential buyers without mentioning names and earlier reports that Apollo was first in the queue may well have been overtaken by events.
What is a surprise is that Apollo ever got into the top three approved by Carlos Costa (pictured) at the Bank of Portugal as its offer is around the €2 billion mark with a share of future profits when Novo Banco is sold on.
The Treasury wants €4.9 billion from the deal, by now even Finance Minister Maria Luís Albuquerque will have realised that Novo Banco simply is not worth anywhere near this amount.
The risk is greater than the value, according to Bruno Faria Lopes writing in Diario Económico on Tuesday morning, who takes the €500 million involved in the BES ‘commercial paper’ customer scandal, add €700 million + from the Goldman Sachs action, add €292 million in current court enforcement actions against the bank, plus about €1.5 billion in customer loan risks and the total risk is greater than the value of the bank.
Apollo represents the hardest deal for politicians to get over to the public as it is a venture capital company and will promise pretty much anything to gain control over Novo Banco. In the normal course of operations venture capital companeis sell off assets, mortgage anything without a pulse, cut staff levels, recover the amount invested as soon as possible and then sell the heavily indebted business.
This is what venture capital funds do, usually within 5 years during which time politicians change, life goes on and few will remember the dramatic bailout of August 2014 and the unilateral decision by the government to save BES from the scrap yard thus exposing the taxpayer and the country's banks to a huge loss on a deal taken for political reasons.
Apollo already has made clear that it can only come up with about €2 billion, not much for a company allied in the recent past with Santander.
Negotiations with Fosun are unlikely to start immediately as the company does not have a team in Portugal to head up any talks but with a 15 day timetable before negotiations must be concluded one way or another, the Chinese need to be in place as soon as possible.
Fosun has a presence in Lisbon responsible for its other Portuguese assets but this management unit will not be involved in any dealings with the Bank of Portugal.
Apollo already has hinted at merging Novo Banco with another Portuguese high street bank. The Financial Times last week reported that Apollo already had held talks with BPI whose management at least has experience in running a high street banking chain.
Prime Minister Pedro Passos Coelho was asked what the outcome of the Novo Banco sale will be. His answer "the best that the Bank of Portugal can achieve" covers all eventualities but the struggling Bank of Portugal governor is unlikely to achieve anywhere near the target of €4.9 billion whichever company he chooses.
It did not help matters that Novo Banco yesterday reported first half losses of €252 million.
A spokesman for the BES depositors group that had their money misappropriated by Ricardo Salgado’s BES in one of the more outrageous banking scams in recent history said today that the end of the negotiation with Anbang was "the first sensible measure" the Bank of Portugal has made since last August.
This is not a positive comment on Fosun or Apollo, rather comment made in relief that the Anbang deal did not go through as the depositors want Novo Banco to continue as it is under Stock da Cunha until the bank is in a position to pay them back.
The association commented that the Bank of Portugal "does not know how to sell banks" and hopes that if the next proposal is as bad as the last one, Costa should "follow European best practices" and try and get the bank up and running under its own steam.
In the meantime we have the delight of watching the Bank of Portugal's tired crew restarting negotiations to sell Novo Banco with the price wanted by the government as far away as ever.
Anbang was chosen due to the offer price it first fielded, i.e. before the Chinese started making the offer conditional, so the likehiood of Fosun or Apollo topping the inadequate Anbang bid is slim.
