Novo Banco to request €850 million from Resolution Fund

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Novo Banco is preparing a request of €850 million from the resolution fund to top up its capital ratios.

The application forms part of the deal for the contingency capital mechanism agreed when 75% of the bank was sold to US fund Lone Star and which obliges the fund to inject capital into the bank lead by António Ramalho.

Lone Star agreed to provide capital whenever losses result from the sale of a number of assets with an impact on the financial stability of the bank.

Novo Banco has consistently failed to make a profit since being founded from the ashes of failed Banco Espírito Santo in 2015.

In 2016 it reported losses of €429.3 million, by the end of 2017 that loss jumped to almost a billion euros, falling back to a loss of €188 million for Q3 of 2018.

The information on the application to the fund was reported by the business daily Jornal Económico. The resolution fund is supported by the Portuguese banking system which injected 791 million into the fund in 2018.

To September 2018 Novo Banco recorded overall losses of €420 million, mostly penalised from the sale of assets.

António Ramalho has been attempting to clean the banks balance sheets of debt and non-performing loans by selling the NPLs and offloading properties, operations which have had a negative impact on its accounts and penalising the institution’s capital ratios.

The sale of 75% of Novo Banco’s capital to Lone Star included the creation of a contingency capitalisation mechanism with a maximum value of €3.8Bn. This mechanism obliges the resolution fund to make payments to the bank under certain conditions related to the performance of a number of Novo Banco assets and the evolution of levels of the bank’s capitalisation.

The Resolution Fund is the Portuguese national entity created to finance the application of resolution measures by the Bank of Portugal. Although resolution measures should be financed by contribution from banks and financial institutions that are members of the Resolution Fund, in the case of the BES resolution in 2014 the initial capital injection of €4.9 billion by the Resolution Fund in Novo Banco was financed in €3.9 billion by the Portuguese State and only the remainder by the banks that are members of the Resolution Fund. On January 2018, the Resolution Fund disclosed its Annual Report for 2016, in which it recognises full loss of the €4.9 billion cash injunction made into Novo Banco at the time the resolution measure was taken back in 2014.