It’s done: Novo Banco has 1.3 billion losses. The State “pays” 800 million

Novo Banco will indeed present record losses in 2017. Last year accounts are almost closed and the last numbers pointed to losses of around 1,300 million euros, ECO ascertained near sources close to the process, although some adjustments may still be made, these historical losses for Novo Banco mean the State will inject around 800 million euros in the institution in order to restore its capital ratios.

It is still uncertain when Novo Banco will publicly disclose its accounts, but several sources close to the process told ECO the last numbers ascertained by those in charge of the bank point to losses of around 1,300 million euros. This means that the institutions’ losses were lifted to 3,500 million in just over three years of existence. When contacted, Novo Banco refrained from commenting.

The magnitude of the 2017 losses (and consequent deterioration of the capital ratios) will lead to a new public capital injection to restore the bank’s financial solidity. Those same sources told ECO that the injection will be “slightly smaller than 800 million euros”, transferred by means of the Resolution Fund (which holds 25% of the bank’s capital) and the Capital Contingent Mechanism.

This will not be the only public injection. It is foreseen that the Resolution Fund will be called into action again in 2019, but with a smaller intervention, since the expectation is that Novo Banco will have more positive results this year.

Novo Banco ended 2017 with the worst results of its short lifespan due to a more aggressive impairments’ policy in order to clear the banks’ toxic balance as quickly as possible, as demanded by the European Central Bank (ECB). But it made that clearance effort knowing that it had a capital buffer from the Portuguese State, which committed to sustaining NB’s bad results when 75% of the institution was sold to the North American fund Lone Star.

Every time Novo Banco’s capital ratios fall below a 12.5% threshold, the Contingent Capital Mechanism, a mechanism through which the State assures, whenever necessary, that the Resolution Fund can receive money to be able to finance itself in case the money it holds — which comes from annual contributions from Portuguese banks — is insufficient to help Novo Banco. For 2018, it was decided that the State’s loan could not go over 850 million euros, so the Resolution Fund’s request stands within this amount.