BCP confirms legal proceeding, standing against the guarantee given to Novo Banco

  • ECO News
  • 4 September 2017

BCP has confirmed, in a press release sent to CMVM, it moved forward with a legal proceeding against the decision of having the Portuguese Resolution Fund give a guarantee to Novo Banco's new owners.

In a press release sent to the Portuguese Securities Market Commission (CMVM) this Friday, the Portuguese bank BCP reveals they moved forward with a legal proceeding against the Bank of Portugal’s decision of having the Resolution Fund give a guarantee to the new owners of Novo Banco, the North American fund Lone Star.

In the press release sent to the regulator, the Portuguese bank explains that “after having conveyed reservations regarding the contingent capitalization obligation by the Portuguese Resolution Fund (Fundo de Resolução) which was announced to be included in a sale agreement of Novo Banco, has decided, in light of the legal deadline and for caution, to request the respective appreciation through administrative legal proceedings”.

According to the institution headed by Nuno Amado, this diligence, “which centers exclusively on the referred capitalization obligation, does not comprise the request by the Bank of, nor entail, the production of any suspensive effects on the sale of Novo Banco, S.A. and, consequently, brings legally no impediment to such sale within the foreseen delays“. Although the bank does not specify against whom the process is issued, several sources contacted by ECO stated the proceeding is against the Bank of Portugal as a resolution authority.

The 3.9 billion euros’ guarantee granted by the Resolution Fund in the sale of Novo Banco to Lone Star is the main issue on the table. The mechanism — named contingent capital mechanism — foresees that if the North Americans sell Novo Banco’s most toxic assets below their balance sheet value and if that sale causes an erosion in the value of capitals, the Resolution Fund can cover the difference, up to 3.9 billion euros. Since the Resolution Fund is financed by regular and extraordinary contributions from the banking sector, banks fear the impact that guarantee given to the sale of Novo Banco can have on their own accounts.

The Bank of Portugal reacts to BCP: Novo Banco’s sale will continue

The Bank of Portugal stated this Saturday they are aware of BCP’s statements, but they assure the sale of Novo Banco to Lone Star will continue as scheduled. The institution headed by Carlos Costa further states that the sale will continue since “as BCP stated, the administrative legal proceeding does not intend to suspend or block NB’s sale process”, but only concerns the 3.9 billion euros’ guarantee.

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