Lone Star investment fund takes control of Novo Banco


Page created: Thursday, 4 May 2017 16:50 GMT | Updated: Friday, 12 May 2017 13:09 GMT

António Costa  Banco de Portugal   Banco Espírito Santo  BES   Caixa Económica Montepio Geral  Lone Star  Montepio   Novo Banco  Portuguese Central Bank  Resolution Fund

Novo Banco presented losses of 788.3 million euros in 2016

The US investment fund Lone Star acquired 75% of Novo Banco with the compromise of undertaking a capital injection of 1 000 million euros. Novo Banco presented the results for 2016, with losses of 788.3 million euros, mainly due to the increase in provisions for impairments. By order of Banco de Portugal (Portuguese Central Bank), Montepio must approve the transformation into a public limited company in a general assembly.

The Prime Minister, António Costa, publicly announced the decision to sell Novo Banco to Lone Star, taken by Banco de Portugal (Portuguese Central Bank). Lone Star will own 75% of Novo Banco and is committed to make a capital injection of 1 000 million euros, with 750 million euros at the time of sale and 250 million euros in three years. The agreement also includes Lone Star’s obligation not to distribute dividends for eight years; the obligation not to sell the position in the bank for three years; and the obligation to comply with the business plan previously agreed with the European Commission. The Resolution Fund will hold the remaining 25% of the bank, will not have the right to vote or appoint administrators, and will have the responsibility to fund and manage the mechanism with the problematic assets. Finance Minister Mário Centeno said that Novo Banco has a “provision of 1 000 to 1 200 million euros” for problematic assets, so the Resolution Fund will only need to make a capital injection if losses with assets are greater than the amount of the cushion. This sale transaction also includes a process of exchange of senior bonds for perpetual subordinated debt with the objective of generating a capital increase of 500 million euros.

Novo Banco posted losses of 788.3 million euros in 2016, an improvement of 15.2% of the net profit compared to the previous year. This result is largely explained by the reinforcement of provisions for impairments that reached 1 374.7 million euros, an extra 316 million euros in comparison with the previous year. The bank’s statement to the Portuguese Securities Market Commission also explains that this amount is intended to cover possible losses on loans (672.6 million euros), securities (315.9 million euros) and restructuring costs (98.2 million euros). Banking income stood at 877.5 million euros, an increase of 11% over 2015, and operating costs fell 21.7% to 163.8 million euros, resulting in a positive operating result of 386.6 million euros. The bank ended the year with a common equity ratio of 12%, down from 13.5% in December 2015. Loans to customers fell from 3 600 million euros to 33 750 million euros and customer deposits also fell from 1 800 million euros to 25 600 million euros, although the bank guarantees that in the fourth quarter deposits have already increased by 900 million euros. Novo Banco also announced that it had complied with the restructuring plan, reducing 1 312 jobs compared to November 2015 and ending the year with a total of 6 096 employees.

A general meeting is scheduled for May 25 to decide on the transformation of Montepio into a public limited company.  This way, all the units of Caixa Económica Montepio Geral will be represented by shares. This change is due to an imposition by the Portuguese Central Bank, which aims to give greater flexibility to the savings bank in case a capital increase becomes necessary in the future.

Thursday, 13 April 2017 9:11

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Thursday, 13 April 2017 9:09

Portugal's finance minister said on Wednesday he was confident the sale of Novo Banco will go ahead despite the prospect of further losses for bondholders in a debt swap, which is part of the sale agreement with U.S. fund Lone Sta...

Tuesday, 4 April 2017 15:09

Portugal has struck a deal with Lone Star on the sale of Novo Banco, in which the US private-equity fund will acquire 75 per cent of the country’s third-largest lender in return for a capital injection of €1bn. &n...

Monday, 3 April 2017 9:05

Portugal has agreed to sell a 75 percent stake in state-rescued lender Novo Banco to U.S. private equity firm Lone Star in exchange for a capital injection of 1 billion euros into the institution, the government said on ...