Moody's has downgraded Novo Banco in a rating cut to "poor quality and very high credit risk" that shows the recent Bank of Portugal move to recapitalise the loss-making bank has backfired.
Moody's believes that even the latest solvency situation at Novo Banco "can further worsen" even after the Bank of Portugal authorised the transfer of €1.985 billion in bonds from Novo Banco back to the bombed out BES.
The Bank of Portugal imposed losses on this class of bond investors so as to strengthen Novo Banco pre-sale but Moody’s has spotted that Novo Banco’s underlying position remains ‘very weak’ despite the recapitalisation of €1.985 billion and the advantages brought about by the extension of government guarantees.
Carlos Costa at the Bank of Portugal is desperate to sell Novo Banco for a sum that at least covers the bucket loads of cash thrown at the problem caused by the collapse of BES.
This news from Moody’s, that Novo Banco is not worth anywhere near the €4.9 billion sum Costa was envisaging, also is based on the continuing losses at Novo Banco under Stock da Cunha which “may further worsen the solvency situation of the bank, even after the actions approved by the Bank of Portugal."
Moody's refers to "the uncertainty surrounding the very weak credit profile of the bank and the impact of the restructuring plan recently submitted to the European Commission."
The agency also warns that the relaunch of the sales process of Novo Banco scheduled for January 2016, coupled with the fragile solvency position, "together can affect the final evaluation by Moody's of the senior debt and deposits" at Novo Banco.
Another fine plan by Bank of Portugal governor Carlos Costa hits the buffers.
Meanwhile, Costa's appointee to oversee the sale of Novo Banco, Sergio Monteiro, is under pressure from the Left Bloc over the terms of his €25,000 a month salary, a dealyed contract, the way the appointment was made and the claim by the Bank of Portugal that Monteiro was worth the salary as that is what he got in his last job.
In fact Monteiro's last job was in government on a salary level well below the one he now is drawing.
Left Bloc acusations include the fact that Monteiro worked at Caixa Geral de Depósitos which is a creditor of the resolution fund, the fund built up by Portugal's banks which was used by the Bank of Portugal in the BES bailout and in the establishment of Novo Banco.
If Monteiro was convinced of his own abilities, which he seems to be, he would have taken a lower salary plus a bonus on selling Noco Banco for the required amount. This deal was offered but he opted for salary only, which at a comfortable €25,000 a month may make a return to politics difficult.
