The offer sits well below the book value of Novo Banco's insurance company, which might make the Resolution Fund cover the losses.
Global Bankers is the only institution that moved ahead to the final stage of direct negotiations to purchase GNB Vida, the insurance company from the Novo Banco group that was put up for sale last year. ECO was able to ascertain that Global Bankers, an international group that specializes in acquiring insurance companies, is offering 250 million euros for the bank’s life insurance company — quite bellow the assessment that had been made of GNB Vida, of around 450 million euros. If the sale is concluded, the Resolution Fund might have to cover the losses.
GNB Vida’s sale process began last August. In the accounts report concerning the first semester of 2017, Novo Banco, which holds 100% of the insurance company, mentioned that “the sale process expects a sale deal for GNB Vida to be achieved in the last quarter of 2017”. However, there was no signed deal by the end of the year.
When contacted, an official source from Novo Banco only mentions that the sale process is taking place and that, by the end of last year, several purchase proposals were received — not disclosing the identity of those potential buyers. Global Bankers also refrained from answering ECO’s questions.
The 250 million euros offered by Global Bankers stood far from the evaluation made to GNB Vida. The insurance company’s book value was said to stand around 450 million euros, although Novo Banco did not confirm this number, when contacted. A sale below this book value can make the Resolution Fund activate the contingent capital mechanism, the instrument it created as an assurance for Lone Star to accept keeping Novo Banco.
The capital contingent mechanism, worth 3.89 billion euros, was one of the terms the Government gave in to in order to be able to sell Novo Banco. The mechanism is supported by the Resolution Fund, which holds 25% of the bank’s capital, and is activated when two conditions take place:
- If Novo Banco’s toxic assets suffer a devaluation in comparison to its reference value, which will be determined when the sale is concluded;
- And if Novo Banco’s capital ratios drop below a 12% ratio.
If the sale is concluded, and the amount Global Bankers is offering is accepted, there is an over 46% discount (or 200 million euros) in comparison to the book value of GNB Vida. If, paired with this, capital ratios of Novo Banco fall below the level agreed in the sale and purchase contract signed with Lone Star, the Resolution Fund may be called to cover the difference.