Men talk near Portuguese Novo Banco at its head office in Lisbon. Portugal wants to sell Novo Banco — the successor to troubled Banco Espirito Santo after a state rescue last month — quickly because risks grow with time, Prime Minister Pedro Passos Coelho said yesterday.
Reuters
Portuguese Prime Minister Pedro Passos Coelho stood by government policy towards the remains of failed Banco Espirito Santo (BES) yesterday, saying a quick sale of its successor Novo Banco was necessary to avoid further risks.
His comments came two days after the rebuilding of Novo Banco was dealt a blow with the resignation of the three men handpicked by the central bank in July to turn it around, amid reports of disagreements over the speed of any disposal.
BES, which had been Portugal’s largest listed lender, was the subject of a government-arranged bailout after the collapse of the business empire of its founding Espirito Santo family, whose main holding firms are under court protection.
The bulk of its risky assets, including about €2bn of loans linked to the Espirito Santo family, were left behind in the original bank, but analysts and auditors have warned some losses and liabilities may yet be uncovered at Novo Banco, which took on BES’s healthy assets.
Passos Coelho noted the state had poured €4.9bn ($6.3bn), mostly in public funds, into Novo Banco last month and risked more by lingering with the sale.
“The more time passes before the sale, the greater the risks faced,” Passos Coelho told reporters, adding that the government wanted the best possible terms for the operation.
He did not specify any risks but analysts said a drain on deposits and litigation could undermine the value of the bank.
“The message is clear — accelerate the sale, at least there’s some certainty on that now. The new team comes precisely with that mandate as opposed to the previous one which had a medium-term plan in mind,” said Albino Oliveira, an analyst at Fincor brokerage.
He and other banking sources cautioned, however that a speedy sale might not generate the most value.
The Bank of Portugal on Sunday named Lloyds Banking Group director Eduardo Stock da Cunha as chief executive to replace Vitor Bento, whom it had handpicked to run BES in July, before the state bailout.
The new team also includes three other experienced bankers.
Bento — a respected economist and manager, but not a professional banker — said he and his two main executives were leaving because their initial mandate to revive the bank with private money had changed too much since the bailout.
Bento told the bank’s clients yesterday they could rely on the bank and would benefit from management changes.
“Nothing essential changes and the bank will continue its efforts to serve you with the quality you know, being worthy of your trust,” he wrote in a letter, arguing the management change had occurred at an opportune moment and “has nothing dramatic to it”.
Ciaran Callaghan, analyst at Dublin-based Merrion Stockbrokers, said: “Ideally from Novo Banco’s s point of view, it would have been better to have a period of management stability until a private sale completes.
“However on the face of it, it looks like management were unhappy with the high level of intervention in the bank’s strategy by the government and Bank of Portugal and they felt that they were no longer in a position to add much value.”
The reshuffle triggered jitters among investors holding the bank’s senior unsecured bonds. The interest rate they demanded rose by 20 basis points, or 0.2%, in the first few hours of trading as the price of the bonds fell.
“There are still lots of open questions about the bank and its value — notably what’s going to happen with the Angolan unit,” said Oliveira.
Auditors have warned it is yet impossible to quantify the impact from the Angolan state’s intervention in BES’ Angolan unit BESA, which led to the revoking of a state guarantee issued for up to $5.7bn, or 70% of BESA’s loan book.
Novo Banco does not face any risks from the Angolan unit, since BES’s stake in BESA was left behind in the original bank. The new bank can get some upside if Angola comes good, however, because it holds a 3bn euros credit line that was extended to BESA by BES. That credit line was valued at zero when Novo Banco was created, so the bank does not face any downside.
Diario Economico newspaper said Spain’s Santander and Portugal’s Banco BPI may be interested in buying Novo Banco Officials at the two banks declined to comment. Fernando Faria de Oliveira, head of the Portuguese Banking Association (APB), told Reuters there were potential interested parties, but declined to elaborate, saying the sale process had to be defined first.
He hailed the quick replacement of Novo Banco’s management, saying the new team’s profiles “match perfectly the goals of maximising the bank’s value and preparing it for sale.”
Another banking sector analyst who did not want to be named said that while the resignations undermined stability, the appointment of a new team charged with the sale was “generally a good sign”.
“They come on a leave of absence from their main jobs, which makes them a task force set up for the sale,” said the analyst.
“They (the outgoing executives) had been invited to recover and run the bank and not as a liquidation committee, so it’s fair to quit,” the analyst said. “I really don’t think they left because they discovered any larger holes at the bank — Novo Banco and the central bank just cannot afford the risk of hiding any such findings.”
