Ratings agency Moody's said today that the recapitalisation plan for Caixa Geral de Depósitos was "positive" and says the financial rescue of the State owned bank is in line with European rules.
The €4.6 billion refinancing agreement reached between Lisbon and Brussels was approved by the European Commission last Wednesday (August 24) and the inbuilt safeguards for institutional creditors has enabled Moody’s to give the thumbs up.
There is still a big question mark over the plan to raise €1 billion from the public as this sum will not be covered by cushy State guarantees covering the more formal debt instruments.
Moody's claims the recapitalisation total is in line with the necessary amount and the new board will strengthen the capacity of Caixa Geral to absorb losses from its high level of problem assets and loss-making operations.
The government is injecting €2.7 billion of taxpayers cash into the bank and converting €900 million of CoCo's in State aid that the bank has notably failed to repay. This is but part of the €4.9 billion cost of keeping the bank from closing
Noting that this plan aims to preserve the "competitiveness and sustainability" of Caixa Geral, Moody's notes, rather unnecessarily, that that the public bank will now have to move forward with a "restructuring plan in order to restore its ability to generate long-term profits and reduce provisions for bad debts."
Moody's is realistic about one thing, it anticipates that Caixa Geral will be "adversely affected" in the coming months when it announces record losses for 2016. The bank managed to lose €205 million in the first half of the year.
What the ratings agency failed to note was the effect the recapitalisation will have on the national debt figures, whether this year or next, and the continuing lack of clarity in a loan book that has been mired in allegations of favouristism, corruption and poor judgement.