Sale of Novo Banco helped Portugal get out of ‘junk’ status

The Government’s sale of Novo Banco, created from the ashes of failed bank Banco Espírito Santo in 2015, was one of the factors which helped Portugal shake off its “junk” status with the ratings agencies.

According to Máximo Santos, Vice-Governor of the Bank of Portugal (BdP) and Chairman of the Resolution Fund that in part held a share in the bank Novo Banco , said the bank’s sale to US investment fund Lone Star was “certainly” a factor in Portugal’s “junk” bond status being lifted.

The ratings issued by international ratings agencies such as Moody’s (Baa3 – Stable), Fitch (BBB – Stable), Standard & Poor’s (BBB – Stable) reflect Portugal’s capacity to pay its debts.

In an interview with TSF radio and Diário de Notícias, Máximo dos Santos (one of the contenders to be the next Governor of the Bank of Portugal) said, “We have to take into account that if the sale of Novo Banco to Lone Star had not happened, the rise in the rating of the Portuguese Republic and a more positive look at the overall state of our financial system certainly would not have happened.”

At a time in which a new injection from the Resolution Fund in the Novo Banco was expected on the back of a contingent capital mechanism, worth almost €800 million, Máximo dos Santos recognises that they are “high amounts”.

However, dos Santos states that: “accounts are made at the end” of the process since the share of the Resolution Fund has yet to be sold.