Extra Novo Banco capitalisation agreed with Brussels up to €1.6 billion

The amount of extra capitalisation for Novo Banco (NB) that the state agreed with the European Commission (EC) within the scope of the sale of the bank to Lone Star goes up to €1.6 billion, according to the audit of the Court of Auditors (TdC) published on Monday.

It was already known that under the state’s agreement with Brussels, in case of need and due to serious adverse circumstances and if the shareholders were unable to meet them, Portugal would provide “limited additional capital”, but the exact amount was unknown.

Under the sale agreement, “the Portuguese state notified the EC of three state aid measures (with a third commitment letter) deemed necessary to complete the sale”, which act “as guarantees for the capitalisation of NB to meet the applicable ratios”, two of which after “exhausting other alternatives”, such as recourse to the market.

The first concerns the Contingent Capitalisation Agreement (ACC) currently in force, which goes up to €3.89 billion and of which Novo Banco has already consumed €2.97 billion, with €914 million remaining.

The other two aid measures in question, to be triggered if alternative measures fail, are the “assumption by the Resolution Fund of subordinated debt issued by the NB, up to €400 million”, and also a “backstop capital injection by the Portuguese state in NB up to the maximum amount necessary to ensure its long-term viability (€1.6 billion), in the EC adverse scenario”.

The adverse scenario implying that amount was made “based on the restructuring plan prepared by Lone Star to demonstrate the viability of NB at the end of that restructuring” at the end of 2021.