Novo Banco requested a capital injection of €1.037bn in the beggining of March, much of which will be sourced from the Portuguese state.
In the last week of February, Portuguese lender Novo Banco reported its 2019 year-end results, where it showed €1.067bn of losses, a 25% improvement on the previous year. That was the good news.
The bad news was that the bank said it would request €1.037bn from the Portuguese resolution fund (FdR), the country’s public body that supports resolution measures applied by the Bank of Portugal.
However, this was not the first time Novo Banco has asked for the resolution fund to help. The new request, if granted, would bring Novo’s total capital injections from the FdR to €2.978bn since 2017.
The reasons for the injections have their origins in the sale of a 75% stake in the bank to US private equity fund Loan Star in 2017.
Novo Banco was created in 2014, comprising the good bits of Banco Espírito Santo, which entered into resolution that year. The Portuguese state owned it all until Lone Star arrived, keeping 25% after the sale was completed.
A clause in the sale contained a contingent capitalisation agreement (CCA). The CCA would be triggered if certain ratios for the bank fell under particular thresholds, or if the bank registered losses across specified assets, forcing the FdR to inject capital to replenish the bank’s capital ratios. The agreement also stipulated a ceiling of €3.89bn of injections from the FdR.
Original Story: Global Capital |David Freitas
Photo: Novo Banco site
Edition: Prime Yield