Novo Banco: 5 years, €6bn in losses

Contradictory as it may seem, what was born from the ashes of “bad bank” BES as the new Novo Banco, has already accumulated €6 bn in losses, in its 5 years of existence.

Last Friday, Novo Banco (founded in August 2014) presented its results for 2018, with €1.412 bn in losses, a number which has been mostly driven by the sale of their most problematic assets, such as the 9,000 properties from Project Viriato, and the non-performing loans portfolio valued at €2.150bn, from Project Nata. That is all part f BES’ legacy, which continues to weigh down on the new bank’s performance, owned by Lone Star (75%) and the state (25%), said António Ramalho, justifying the negative results.

When the sale of the banking institution was ‘sealed’ in October 2017, a contingent capital mechanism was created, which mandates that the Resolution Fund shall intervene — by injecting capital, anytime there are losses due to the alienation of problematic assets, which put the bank’s ratios below the demanded levels. That is exactly what happened n 2018, and it will happen again in 2019: now the Resolution Fund will have to contribute with €1.149 bn in order to re-establish the bank’s financial stability.

Since the first day of Novo Banco’s establishment, the Resolution Fund already injected €6.9 bn, which is an amount that ha a direct impact on public finances, as the Resolution Fund is entrenched in the State Budget.

€4.9 bn in 2014, nearly €800 mn in 2018 and now a surprising €1.149bn. In the time when Novo Banco officialized its sale, their speech was quite different. In that time, Mário Centeno and Mourinho Félix guaranteed that resorting to public resources, namely to that mechanism, was not likely to happen.

Not much time was needed until the news got to Terreiro do Paço, at the Ministry of Finance. During a press conference where the results were being presented, the ministry showed utter shock regarding the amount of money they would have to lend to the Resolution Fund (€850m), and it sent out a press release to all newsrooms noting that it ordered an audit to all the credits conceded which are affecting the contingent capital mechanism.

This audit is similar to the one which was demanded to CGD and that revealed ruinous credit concession operations between 2000-2015. Confronted with the news, António Ramalho, head of Novo Banco, said that “all audits are welcome”.

Later, interviewed by RTP, Ramalho noted that Novo Banco will “request whatever amount is necessary” from the Resolution Fund to “clean up” the banking institution because he does not wish to “postpone resolving the issues which will haunt the bank in the future”.

Ever since its founding, in 2014, the bank has never presented annual profits. In its first five months of existence, between August and December, it already recorded losses close to €500 million. In the following years, the losses got worst: €981 million in 2015, €780 million in 2016, €2.298 million in 2017 and in 2018 losses got up to €1.412 million.

We did the math, and Novo Banco accumulated € 5.975bn in losses since 2014.

To show that there are good things happening in Novo Banco, António Ramalho has decided to separate the bank between “Novo Banco Legacy” and “Novo Banco recurring”, for accounting purposes. The first one includes toxic assets (credit in default and real estate) and discontinued assets (for instance the insurance company GNB Vida), and it is headed by Jorge Cardoso, who will leave the CFO position to Mark Bourke. In the second section, there is all of the bank’s good performance, without the weight of BES’ past weighing in, and in this section, Novo Banco reached €2.2 mn in profits, which lets the banking institution have some hope for the future.

Novo Banco was “born” from the ashes of its fallen king, BES.

Last year, as the bank marked its 4-year anniversary, ECO asked António Ramalho if the Portuguese bank would ever be back on track, and he answered with a saying: “what doesn’t kill you makes you stronger”.