Lone Star asks €12 million to the Resolution Fund for BES lawsuits

  • ECO News
  • 5 May 2021

The American shareholder has requested €12 million from the Resolution Fund to offset the impact of negative court decisions in Portugal and Spain related to the BES resolution measures.

Novo Banco’s US shareholders have already requested €12 million from the Resolution Fund to offset the impact of negative court decisions in Portugal and Spain related to the BES resolution measure, the audit by the Court of Auditors (TdC) reveals.

These requests were made under a compensation mechanism created at the time of the sale of 75% of the bank’s capital to the Lone Star fund, through the company Nani Holdings, in October 2017, and which provides for payments to benefit the bank in relation to any negative effects of future decisions arising from the resolution of BES and which would result in liabilities or contingencies for Novo Banco.

The first 12 ‘invoices’ have already arrived at the fund led by Máximo dos Santos because of unfavourable decisions in Portuguese and Spanish courts, totalling 12 million euros. No payment has yet been made, however, as no court decision has been finalised. Only after the final decision has been taken and it is known whether the damage is covered by this mechanism will the compensation be paid.

“To date, Nani Holdings (counterparty of the Resolution Fund in the purchase and sale agreement) has already addressed to the Resolution Fund 12 claims under this mechanism, amounting to 12 million euros in relation to judicial decisions by Portuguese and Spanish courts that, not respecting the resolution measure, condemned Novo Banco and its branch in Spain for BES liabilities that did not transition to Novo Banco under the terms of the resolution measure,” according to a response from the bank to the Court of Auditors as part of the audit now revealed.

It added: “To date, no payment has been made to Novo Banco by the Resolution Fund under this mechanism. It follows that only when there is a final and unappealable decision is it possible to determine whether that specific decision and the resulting damage is covered by this compensatory mechanism.”

Even if this €12 million figure is almost irrelevant considering the capital injections that Novo Banco has already received from the Resolution Fund, totalling around €8 billion since 2014, the truth is that neither party has any estimates on what the impact of the court litigation might be on the BES resolution, which was applied in August 2014.

In addition to the BES resolution, which imposed losses of €6 billion euros on the bank’s shareholders and bondholders (as mandated by the resolution rules), this compensation mechanism covers any negative effects that may arise for Novo Banco in relation to the December 2015 decision on the retransfer of senior bonds worth €2,000 million from Novo Banco to the “bad bank”.

In this chapter, one of the most relevant litigations going on in court has Goldman Sachs and several international funds as plaintiffs due to an 835 million loan to BES shortly before it was resolved.

“It is not possible for Novo Banco to quantify or estimate the possible negative effects of judicial decisions on the resolution of BES that the Resolution Fund should compensate under the sale-purchase agreement,” the bank told the court.

Last year’s Report and Consolidated Accounts of the Resolution Fund also left a scenario of uncertainty as to the burden it may have to assume in the future: “It should be added that there are lawsuits in jurisdictions other than Spain with material values that have not yet had relevant developments, but from which liabilities may emerge for the Resolution Fund, the basis of which will be assessed on a case-by-case basis. (…) as these are lawsuits without legal precedent, it is not possible to reliably estimate the potential contingent financial effect.”

However, the fund then left a hint of optimism in relation to this outcome, noting that the interventions of the Bank of Portugal and the Resolution Fund were admitted by the courts in Portugal and that a Supreme Court decision favourable to the interests of the Bank of Portugal and the Resolution Fund has already been handed down.