Lone Star is ‘satisfied’ with investment in Novo Banco

  • ECO News
  • 18 October 2018

One year after signing the deal with the BdP and the Resolution Fund, Lone Star is 'satisfied' with the business decision. The North-Americans paid €750m to get a 75% stake of the bank.

A year ago, on the 18th of October 2017, the North-American hedgefund, Lone Star, decided to invest in the three-year-old Novo Banco. The afternoon of that day was marked by the signature of the deal which transferred 75% of the bank’s capital to the North-American equity.

Lone Star told ECO that the fund is “satisfied” with the operation, highlighting the progress achieved by the banking institution, namely in terms of reducing its problematic assets.

Carlos Costa, the governor of the Bank of Portugal (BdP), Sérgio Monteiro, responsible for “setting-up” the transaction, Luís Máximo dos Santos, vice-governor of the BdP and the person responsible for the Resolution Fund, and the President of Novo Banco, were all at the signing ceremony that day, last year. Lone Star was represented by its senior managing director, Donald Quintin.

Step by step, the bank was finally sold. Lone Star got 75% of Novo Banco, while the banking Resolution Fund (a state entity which is financed by the banking contributions) got the remainders 25%. The Americans paid €750m for the 75% shareholding position, but up until now, the total investment from Lone Star has already got to one billion euros, as the fund focused on capitalizing the bank in a moment when losses were pilling up.

“The process of the bank’s sale and its recapitalization, including here the one billion euros invested by Lone star in Novo Banco, the capital of the bank has improved significantly”, Lone Star told ECO. However, this was not the only capital injection made so far. By the end of the year, the Resolution Fund, in order to fight the €1.4 bn losses the bank faced, injected €792m in Novo Banco, with part of that capital coming from a State loan. The bank has now €726m more on its accounts, as a result of a major clean-up of its balance sheet.

“We are satisfied with the progress achieved by Novo Banco so far”, the North-American fund noted. This satisfaction is connected with, namely, “the reduction of assets in the contingent capital sphere, which decreased from €7.9 bn to €4.9 bn on June 30th, 2018”, they added.

Besides the efforts on cleaning up the bank’s balance sheet, which has made Novo Banco sell its real estate portfolio and forced it to start alienating some non-performing loans it had with client-companies, the banking headed by António Ramalho has also started getting rid of non-strategic assets, divesting some units abroad, as was the example of the insurance company GNB Vida.

At the same time, it has been also betting on closing some of its branches all over the country, which resulted in several of the bank’s employees being fired. Despite these decisions which seem to make the bank smaller and smaller, Lone Star is fully committed with Novo Banco’s private and corporate clients.

“We want to continue providing the bank’s clients with the service they expect, at the same time as we work on reinforcing Novo Banco’s positioning in the Portuguese banking system, with the end goal of building a stronger and more stable bank, one with the capital, resources, and knowledge required to become a pillar of the Portuguese economy”, the fund stated, on a written memo.

“Novo Banco’s benchmark is the daily work it does building up small and medium enterprises, one of the most important drivers of growth in the country”, Lone Star noted. “Together, with regulators, managers, employees and clients, we will continue our hard work, in order to guarantee the bank grows in a strong, solid, trustworthy and respectable way over the next few years”.