Novo Banco gets 1,600 million in deposits after debt repurchase

  • ECO News
  • 6 October 2017

The transition bank has paid more than 1,900 million euros to repurchase part of its debt, but 80% of that amount remained in the bank as short term deposits.

After the debt repurchase operation, which was concluded this week, Novo Banco should increase its deposit base in over 1,600 million euros. The news were disclosed this Friday by Jornal de Negócios, quoting the bank’s CEO António Ramalho.

“We assured a stable liquidity of, at least, 1,600 million euros, considering the intentions” of joining the deposits’ proposal, António Ramalho told Jornal de Negócios. The same newspaper discloses that amount represents 80% of the amount payed by Novo Banco to repurchase its debt. The same is to say that the institution paid 1,988 million for the repurchase of bonds, but out of this amount, 1,600 million euros will remain in the bank as deposits maturing in between three and five years, which will allow the bank to “preserve” its liquidity, António Ramalho highlights.

In the debt repurchase offer memorandum, Novo Banco gave bondholders who accepted selling their debt the opportunity to deposit it with an agreed maturity and more appealing conditions than those offered by the market. The interest rate offered for these deposits depends on the maturity of the applications that were sold, reaching up to 6.5%.

As for clients who hold bonds maturing in 2019, for example, Novo Banco offered to repurchase those bonds for 82% of their nominal value, meaning bondholders would suffer an 18% loss. But this loss could be compensated with a three years’ deposit, which pays and annual interest rate of 6.5%; as for longer maturities, the interest rate is smaller.

The remuneration of these deposits should cost Novo Banco another 200 million euros, according to Jornal de Negócios. However, the debt exchange operation allowed the institution to have a 700 million euros’ margin, mainly resultant from savings with interests payment.

The debt exchange operation was concluded in the beginning of this week. Creditors accepted to exchange 4.74 billion euros in bonds, an amount which stayed below the goal set by the bank; nonetheless, it will allow Novo Banco to have a 500 million euros’ capital cushion, a key term for concluding the sale to the North American fund Lone Star.

Also this Friday, Jornal Económico remainds that Novo Banco’s capital injection will be fully performed this year. The initial idea was to have Lone Star make a 750 million euros’ injection right away, and pay the remaining 250 million euros until 2020, but the fund decided to inject all the 1,000 million this year. Therefore, the Resolution Fund is able to increase the capital cushion and avoid having to use the contingent capital mechanism, if the bank’s ratios were to decrease because of losses with assets.