Brussels is already involved in the negotiations with Lone Star

Exclusive negotiations between the Lone Star fund and the Government for the sale of Novo Banco will also involve Brussels. The Portuguese financial sector supervisor, the Bank of Portugal, had recommended the Government should move forward with a new stage of the acquisition process, and have confirmed their decision this Monday. Those negotiations aim to implement a mechanism that allows sharing the risk associated with Novo Banco‘s troubled assets.

These exclusive negotiations take place after the North-American fund reconsidered their demands and dropped the state guarantees for possible losses in Novo Banco‘s “side bank” — which pleased the government, since those guarantees would have repercussions on the Portuguese deficit.

As for Brussels’ participation, the final solution will need the green light of the European Commission’s Directorate General for Competition to make sure there will be no state aid. Besides, the government is negotiation a solution with Eurostat that allows for the impact of the operation on the deficit to be ascertained only when there is a later sale of the State’s equity.

A mechanism for sharing the risk associated with Novo Banco‘s troubled assets, or of any other public entity as shareholder of the institution, with a minority stake, is a model which requires the authorization of the European Commission’s Directorate General for Competition, since the commitments undertaken by the Portuguese executive implied the sale of Novo Banco as a whole.

Marques Mendes, on his weekly commentary this Sunday night on the Portuguese TV channel SIC, disclosed the Lone Star Fund intends for the government to hold 35% equity of Novo Banco for a while. In return, the North-American fund will increase the injection amount to the bank headed by António Ramalho from 750 million to a billion euros.