The liquidation of Novo Banco is still not off the table

  • ECO News
  • 6 April 2017

Three conditions have to be met: the approval from the European Central Bank, DGComp's approval, and the success of the senior bond exchange operation.

Novo Banco‘s sale contract to the North-American fund Lone Star has been signed. Nonetheless, the risk of seeing the bank liquidated is still not off the table — only the deadline for the conclusion of the sale (August 3).

In order to execute the agreement made with Lone Star, there are three conditions that have to be met:

  1. The approval from the European Central Bank (ECB), which must authorize Lone Star as a qualified shareholder of Novo Banco. That means that, according to the regulation nº 1024/2013, the ECB will assess Lone Star’s honourability, “for ensuring the continuous suitability and financial soundness of credit institutions’ owners”;
  2. The approval from the European Directorate General for Competition (DGComp), which has to assess whether or not the sale maintains the bank’s viability and does not distort competition;
  3. And the success of the voluntary senior bond exchange operation, worth between 2.9 and 3 billion euros, aiming to reinforce Novo Banco‘s capital by 500 million euros; the operation can be performed by altering maturities, interests or the value of the bonds.

If any of these terms are not met, the sale might not be concluded, which does not mean the bank will be automatically liquidated; instead, it means the Portuguese authorities will have to enter new negotiations both with European regulators and with Lone Star. However, it is clear that the liquidation risk has not disappeared — it just doesn’t have a foreseen date.

The closing of the operation may be concluded by the end of 2017, although the deadline can be successively extended. When the operation is closed, Novo Banco will officially stop being a transition bank.

PUB