Deloitte: Novo Banco sold properties at discount without explaining why

The International accounting firm Deloitte has concluded that Novo Banco sold groups of properties in its portfolios at knockdown prices without giving any explanation as to why.

In its analysis into the bank, alleged to have cost €3 million, Deloitte concluded that NB sold properties at prices that were less than market value without analysis or justification.
A situation which is allowed according to the bank’s internal rules, according to the accounting consultant.
This was just one of the conclusions in the audit that was released on Portugal’s parliament website on Tuesday.
“The sales made by Novo Banco were made for less than the amounts shown for the latest valuations available,” confirming previous news that various properties were sold at a discount.
However, the bank had given no explanation for it. “Novo Banco had equally not implemented procedures of analysis or formal justification to explain the variations which were seen in the values obtained compared to the previously available valuations” states the audit.
The Deloitte team verified that in the “proposals that approved the property sales is a description of the characteristics of the same, but what is not included is a justification or explanation for the difference between the sale value and the previous valuation value.”
The consultant notes, however, that: “such a justification is not required according to applicable Novo Banco internal regulations.”
However, it refers to the “non-existence of regulations specifically related to the sale of aggregated properties that could have been in force at the time of the period under analysis, at the Novo Banco and fund management company level which identify the steps to be taken, although these are regulations governing only the single sale of properties that were taken into consideration in the analysis.”
According to the auditor, Novo Banco’s property portfolio had a net value of €2.0Bn on 4 August 2014, climbing to €2.7 Bn on 31 December 2015.
“From that date, the property portfolio saw a gradual reduction, so that its total net value was €2.03Bn on 31 December 2018,” states Deloitte, explaining that in 2018 the Project Viriato sale of properties worth €550 million was made.
Both in 2017 and 2018 the properties were responsible for the lion’s share of the bank’s losses.
Deloitte also explained that the sale of property portfolios held by open investment funds took place between 2014 and 2017, and that these operations “did not always have adequate or rational documentation to support the setting up of the portfolio, the expected value of the sale (based on valuations of the portfolio), or even a study into alternative scenarios”.
It was also revealed in Público that Novo Banco didn’t even tell the Resolution Fund about the internal decision to reject the sale of some properties.
One such sale involved a group of properties worth €645 million and a Spanish institution that sold them.
The department in charge of compliance and good practices at Novo Banco twice rejected the deal, yet the Resolution Fund only found out about it nearly two years later.
The bank’s management led by António Ramalho was advised twice by Compliance not to sell property asset portfolios involving the Spanish entity Alantra. Deloitte discovered that the warnings were only reported to the Resolution Fund almost two years later in June 2020.
Deloitte also reveals in its report that it was unable to confirm or exclude possible links between the buyers of the Novo Banco property portfolios and companies close to the bank itself, and the US shareholder Lone Star which acquired 75% of the institution in 2017.
In other words Novo Banco may have sold the properties to funds with direct or indirect links to Loan Star (and below market prices) in what would be a clear conflict of interest.
The Deloitte report also showed that Novo Banco lost €272 million from loans made to clients in the construction industry between 4 August and 31 December 2018.
The audit reveals failures in the business projections and plans of these construction companies when the decision came to give them loans or restructure existing ones. Some of these construction companies actually went bankrupt.