Banks may have preemptive rights on the purchase of Novo Banco’s assets

Portuguese banks may get the preemptive right in the purchase of Novo Banco’s toxic assets. The proposal was presented by the banking to the Bank of Portugal, according to Jornal de Negócios, and it is said to have been well received by the entity headed by Carlos Costa, although no decision has yet been made.

According to the Portuguese newspaper, the proposal was discussed between the Portuguese Banking Association (APB) and the Bank of Portugal, when discussing the sale of Novo Banco to Lone Star and the contingent capital mechanism. This mechanism is meant to cover losses resultant from the transition bank’s toxic assets which could force the Resolution Fund to inject up to 3.890 million euros in Novo Banco.

The idea would be that banks have preemptive rights on the purchase of Novo Banco’s assets which are comprehended by the contingent capital mechanism. Brussels requires that 75% of that portfolio has to be alienated in five years. Considering banks will have to take on the losses caused by Novo Banco’s toxic assets because of their participation in the Resolution Fund, they want to have priority in a possible purchase of those assets.

Depending on the amount they could get for alienating those assets, this would be a good way for banks to minimize their losses associated with their participation in the Resolution Fund. It should be highlighted that banks, particularly BCP, have been highly critical of this assets protection system, since it implies an increase of the Resolution Fund’s responsibilities that will have to be financed by the Portuguese banking system throughout the next few decades.