Resolution Fund has a 4.8 billion euros’ shortfall

  • ECO News
  • 8 January 2018

The Resolution Fund acknowledged a 4.9 billion euros impairment even before concluding the sale process of Novo Banco. This meant the fund's resources sunk to negative 4.8 billion euros.

The Resolution Fund considered the amount injected in Novo Banco in 2014 as lost. That amount, which goes up to 4.9 billion euros, was acknowledged as such even before the bank’s sale was formalized. As a result, and according to the report that goes back to 2016 published by the entity headed by the vice-governor of the Bank of Portugal, Luís Máximo dos Santos, the Fund registered a 4.8 billion euros’ capital shortfall.

“In the end of 2016, the Resolution Fund’s own resources presented a negative balance of 4,760 million euros, which represents a 4,648 million euros’ reduction in comparison to the funds’ own resources registered in the previous year”, can be read in the document published on the Resolution Fund’s official website.

"In the end of 2016, the Resolution Fund’s own resources presented a negative balance of 4,760 million euros, which represents a 4,648 million euros’ reduction in comparison to the funds’ own resources registered in the previous year.”

Resolution Fund

2016 Annual Report

According to the Resolution Fund, “this variation is essentially justified with the acknowledgement, based on prudence criteria, of an impairment corresponding to 100% of the Resolution Fund’s equity on Novo Banco’s share capital (-4,900 million euros)”. In addition, the entity headed by Máximo dos Santos further stated that the amount of that equity — 4.9 billion euros — “does not correspond to the income the Resolution Fund will receive for selling its share in Novo Banco”.

The sale of Novo Banco only took place in October of 2017; 75% were purchased by the North-American fund Lone Star, and the remaining 25% were held by the Resolution Fund. In that sale, the Fund did not register losses because they already anticipated them by means of impairments in 2016. “It was recognized, for accounting purposes as as a precaution, an impairment to 100% of the participation”.

Banks may have to pay 16.5 million for the sale of Novo Banco

In the Annual Report referring to 2016, the Resolution Fund further mentions that Portuguese banks risk having to pay, by means of the entity headed by Máximo dos Santos, more than 16.5 million euros for the sale of Novo Banco. “It may, perhaps, happen that the Fund will suffer a 16,503.5 million euros’ expense (out of which 9,671.4 million euros refer to charges concerning 2014 and 2015, and 6,832.1 million euros refer to charges concerning 2016)”, the report states.

Under discussion is the payment  of financial and legal consultancy related to the sale process of the financial institution headed by António Ramalho. It was the Bank of Portugal that hired these types of services, but these services were integrated in the regime that implies that losses from the enforcement of resolution measures are to be managed by the Resolution Fund.

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