Novo Banco requests €600 million
Novo Banco has requested €600 million from the Resolution Fund to partly cover losses of around €160 million made in 2020.
But Prime Minister António Costa said that the application to the fund by the bank on Friday “exceeded the shortfall”.
“It is a request that will be duly taken into appreciation as the Minister of Finances has already said and clearly exceeds the amount calculated to meet it needs and what is due, but that’s another story,” he told journalists over the weekend.
At issue is disagreements over the €166 million that the Resolution Fund and the Government state should not be paid to Novo Banco. The disagreements have to do with financial provisions made by Novo Banco to cover its winding up of operations in Spain, NB Espanhã which were put up for sale in 2020.
On Friday, the Resolution Fund stated that it was studying the respective impacts on the accounts of Novo Banco under the terms of the contract and capital contingency mechanism,” while the Ministry of Finances has stated its “full conviction” that the bank does not have the right to the €160 million.
From the bank’s point of view, the expectation is somewhat different although the administrative board had decided not to feature this figure into its capital ratios. “As there could be doubts as to the eligibility for the €160 million, and out of caution, the board decided not to account the loss into the capital ratio,” said António Ramalho at a press conference to present the bank’s results after it had announced losses of €1.3Bn in 2020.
The Government had included the sum of €476 million for Novo Banco in the State Budget Proposal for 2021. The cash injection requested by the bank exceeded this amount. If the €166 million were to be discounted, the bank would only have the right to receive €432.3 million, below the €476 million the bank would have expected to get.
Novo Banco has been receiving cash injections via the capital contingency mechanism since it was set up in 2017 when the bank was sold to the US vulture fund Lone Star. This mechanism obliges the Resolution Fund to cover the bank’s capital shortfalls whenever there are losses caused by the problematic inheritance of toxic assets and NPLs from Banco Espírito Santo when it collapsed in 2014.
The Resolution Fund has already injected around €3Bn into the bank since then, with €900 million still in the mechanism available to be drawn.