Former finance minister says taxpayers will foot the bill for Novo Banco

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Former Portuguese minister of Finance, Fernando Teixeira dos Santos has stated that: “ordinary members of the public will foot the bill” for cash injections paid by the State’s Resolution Fund into Novo Banco.

The finance minister under the PS government of José Sócrates which fell in 2011 after Portugal declared itself bankrupt and went cap-in-hand to the IMF and ECB, and who is currently president of Eurobic, was referring to the request of a fresh capital injection this year from Novo Banco from the Resolution Fund set up to provide cash for the new bank created in 2015 from the collapsed Banco Espírito Santo bank.
Both the Government and the administration of Novo Banco have said that the cost of the capital injection will not fall on taxpayers, but Teixeira dos Santos said on Thursday, “At the end of the day, whether the bank’s customers or taxpayers, both are the citizens who will end up footing the bill for these episodes.”
The bank’s losses since 2014 have been staggering. In 2017 they were a massive €2.2Bn while in 2018 they stood at €1.4Bn.
This year the bank made an application to the Resolution Fund for €1.14Bn — on the back of the capital contingency mechanism created when the bank was sold to the US vulture fund Lone Star in 2017 to offset the extremely high toxic assets resulting from the fallout of the collapse of BES.
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 contributions from banks and financial institutions that are members of the Resolution Fund, in the case of the BES resolution (winding up) in 2014, the initial capital injection of €4.9Bn by the Resolution Fund in Novo Banco was financed with €3.9Bn from the Portuguese State and only the remainder by the banks that are members of the fund.
In January 2018, the Resolution Fund disclosed its Annual Report for 2016 in which it recognised the full loss of the €4.9Bn cash injection made into Novo Banco at the time the resolution measure was taken in 2014.
Now the Portuguese State will lend up to €450 million to the Resolution Fund to refinance what is now a public bank.
The Resolution Fund will inject €7923 million into the bank with the €450 million coming from the Government.
Last year, reacting to the huge losses the bank clocked up for 2017, the Novo Note Group, coordinated by Pimco, BlackRock , Attestor Capital and CQS classified the losses as another example of how the Bank of Portugal poorly managed the resolution of Banco Espírito Santo (BES) and the sale of Novo Banco.