Government to inject €1.4Bn into Novo Banco

The Government is looking at ways to speed up the last phase of a recapitalisation process of a bank that was created from the ashes of Banco Espírito Santo which collapsed in 2014.

Novo Banco will receive a one-off capital injection of €1.4Bn sooner than later which will enable the Government to save €600 million against the maximum amount foreseen under the contingent capital mechanism agreed when 75% of the bank was sold to US vulture capital fund Lone Star.
The solution being studied by the Government is above the €600 Million already accounted for in the proposal for the State Budget for 2020 and €850 million authorised in the same document.
However, through this operation undertaken by the Resolution Fund it would be possible to speed up the process of clearing toxic non-performing loans from the account books at the institution led by António Ramalho which has required annual top ups of capital funds to offset the huge debts inherited from BES.
Since the sale in October 2017, the State has already injected a total of €1.9Bn into Novo Banco and if all parties agree (the Government and the owners of Novo Banco) a further €1.4Bn will be ploughed into the bank.
The offset from this one-off capital injection now rather than later is a saving of €600 million. The maximum amount from the contingent capital mechanism is €3.8Bn but the amount injected now would bring that down to €3.3Bn which the Resolution Fund says is adequate to meet the needs of Novo Banco.