Novobanco resolution fund helped save €551M

  • Lusa
  • 12 October 2022

The Secretary-General of Resolution Fund, João Freitas, revealed that the actions of public entities in Novobanco have allowed the state to save €551 million.

The Secretary-General of Portugal’s Resolution Fund (RF), João Freitas, said on Tuesday in Parliament that the actions of public entities in Novobanco have allowed the state to save €551 million, compared with the existing contractual limit.

The official, who accompanied the chairman of the RF, Luís Máximo dos Santos, to a hearing in the Budget and Finance Committee, answered questions from members of parliament about criticism that the entity did not exercise its powers as it could, stating that this exercise, “has minimised the resources paid out by €551 million.

Compared to the contractual limit of €3.89 billion, the cumulative net payment of the RF on September 30, 2022 was €3.339 billion.

According to João Freitas, the public entities (Bank of Portugal, RF and the government) carried out several actions that ended up saving the public purse, including the “recovery of a specific credit” from Novobanco that resulted in a receivable of around €66 million.

According to data released by the RF during the hearing, had the liquidation of Novobanco not been avoided in 2017, the Deposit Guarantee Fund would have paid out €14.5 billion. Thus, €8.3 billion were spent by the RF. According to the entity, in the case of BPN, public support was 92% of assets, of Banif 21% and BES/Novobanco 13%.

In relative terms, the officials told MPs that the intervention in Banif and BPN were higher. “There is no doubt that this support that was given to Novobanco is gigantic. Even so, and if we put it into context in terms of assets in the bank, the cost of the intervention in BPN and Banif was greater,” said Máximo dos Santos.

The chairman of the RF recognised that defending the financial system can be costly, but “the cost of not doing so would be worse.

The official said that in most businesses if there is bankruptcy, the losers are business owners, shareholders, and creditors. “But in banking, it is not like that. There can be a contagion effect that even hits banks that are well managed,” he said, pointing to a “loss of confidence” and a “run on deposits”.

Asked about what the future would be, Máximo dos Santos said that it was “premature to draw up scenarios because by force of the deferred tax mechanism,” Novobanco has three shareholders, or in other words, Lone Star, the state (in a position that could reach 15.95%) and the RF.

The chairman of the entity said he was not in a position to predict what could happen, indicating that “Lone Star itself has not expressed any specific, concrete desire to proceed with the sale of its 75% stake in the capital.