BdP says NB’s sale is of “public interest”

  • ECO News
  • 5 May 2017

Carlos Costa, governor of the Bank of Portugal, answered the preliminary injunction presented by large investors to stop the sale of Novo Banco. The BdP speaks of a resolution for the first time.

The Bank of Portugal has already given an official answer to the preliminary injunctions handed in by large investors to stop the sale of Novo Banco to the North-American fund Lone Star. This group of investors, headed by Pimco and BlackRock, suffered losses totaling more than one billion euros when the Bank of Portugal transferred  five series of notes from Novo Banco to Banco Espírito Santo (BES), the so called “bad bank”. ECO knows the Bank of Portugal (BdP) stands their ground, justifying the sale of the transition bank as being of “public interest”. The bank headed by Carlos Costa also points to the risks of not performing the sale: one of them is the resolution of NB.

“Before such discriminatory and harmful act [of transferring five series of notes from NB to BES], the group which represents over two thirds of the 2.2 billion euros in notes has no other choice but to bring a legal proceeding against the Bank of Portugal in an attempt to recover their clients’ losses“. This was BlackRock’s justification to stop the sale of Novo Banco. Yet, ECO knows the Portuguese central Bank presented to Lisbon’s Administrative Court, last Friday, an official answer [in Portuguese, resolução fundamentada — a prerequisite for deferring the prohibition of executing an action]. Now, the bank awaits the Court’s decision.

In that deferral, the Bank of Portugal stands its ground: the sale of Novo Banco is of “public interest”. Carlos Costa mentions there are risks for NB if it is not sold. Since liquidation is off the table, as ECO had disclosed, the only alternative is its resolution. It is the first time this solution is officially mentioned to large investors, according to a source close to the process.

All in all, these investors lost 1.5 billion euros when the Bank of Portugal decided to transfer senior debt securities from NB to BES. The group of investors believes the best for Portugal would be to reach an agreement, assuring it would result in a smaller financing cost, aside from being more beneficial to the financial sector’s reputation.

In addition, Aethel Partners, the British society headed by Ricardo Santos Silva, also asked its lawyers to move forward with a judicial proceeding aiming to block the sale of Novo Banco to the North-American fund Lone Star; the company had previously been interested in the transition bank carved out of BES, so they told the Bank of Portugal the sale process should restart.