The failure by the bank of Portugal to sell Novo Banco to either of the two Chinese suitors has left the business in limbo, and the need for more capital investment imminent.
China's Anbang could not agree a price so the Portuguese negotiating team switched to talks with Fosun which last weekend were declared unsuccessful.
The Bank of Portugal, also the country’s financial regulator, has halted the whole sale process which was meant to have been done and dusted by the end of this month.
The US venture capital fund Apollo is still out there somewhere, willing to do a deal, but as its bid was the lowest accepted by the Bank of Portugal when choosing the shortlist, it is unable to enter the necessary ‘final negotiation’ stage.
The treasury is pretending that everything is OK when it is not and the Prime Minister Pedro Passos Coelho now has an unwanted political hot potato in his lap just weeks before the general election.
Today’s Diário Económico hints at a knock-out bid from Spain but as any latecomer will not have been through the tortuous selection process, a sale this side of the financial year end is unlikely to happen.
If Novo Banco is not sold befor the end of December then it will have to be refinanced as the next European Central Bank ‘stress test’ will insist Novo Banco is recapitalised, by how much is not yet known - but think in the €1-2 billion range.
This required injection of funds will mean that Portugal’s other banks, the funders of the ‘resolution fund’ which created Novo Banco, will have to transfer more of their own reserves just to keep Novo Banco, a competitor, trading legally.
If the resolution fund does not bolster Novo Banco, this task will be left to the Minister of Finance Maria Luís Albuquerque who will have to raid her own cash pile or issue more paper.
This is seriously bad news for the Portugal’s public accounts as the €3.9 billion put into the resolution fund will have to be recorded as 'government expenditure' which will increase Portugal's 2014 deficit from 4.5% to 7.4%.
The money from selling Novo Banco was meant to be added to the government’s income this financial year and the Technical Unit for Budget Support already has warned that it may be necessary to change the timing of planned bond issues and use international markets to plug the hole left by a ‘no sale’ result.
The role of Carlos Costa, the Bank of Portugal’s governor must now be under review despite the PM and finance minister both giving him their ‘full support’ - often a prelude to a forced resignation.
It was part of the deal, when setting up Novo Banco and trying to cover up Ricardo Salgado’s appalling lack of management control, that the bank should be sold within two years, i.e. by August 2016.
With ‘unquantifiable liabilities’ noted by Novo Banco’s auditors PwC, mainly due to pending legal actions, and the Bank of Portugal prevented politically from selling Novo Banco at any significant loss, the two year timeframe was never going to be enough.
This time pressure was spotted early on by Vítor Bento, drafted in to run the new banking enterprise, who was fired for his troubles.
Had the government allowed Novo Banco to trade for a few years and then be sold when all pending issues had been resolved the topic would not now be on the political agenda.
The sale has been rushed due to the government’s greed. The treasury will have to find yet more public money to keep the bank going, the prime minister looks as incompetent as his bank of Portugal governor and Novo Banco’s management, staff and customers don’t know whether Novo Banco literally is coming or going.
