European Commission: Novo Banco will lose at least €3-4Bn

According to a document published by the European Commission in 2018 on the estimated costs of restructuring Novo Banco, the Resolution Fund will have, in the very best scenario, to fork out €3-4Bn.

As to the bank’s desire to buy a share in bank EuroBic, which at present the bank is not allowed to do, in the future it should be allowed to make acquisitions that create value.
The Board chairman of Nani Holdings (Lone Star), Evgeny Kazarez (a former investment banker chef at Deutsche Bank), this week told a parliamentary inquiry into the bank’s alleged mismanagement, that the losses registered by Novo Banco and offset by the Resolution Fund through the Contingent Capital Mechanism would, according to the EC report, come to at least €3-4Bn.
This estimate justifies the amount provided to the fund from the mechanism which was €3.89Bn of which Novo Banco has already used up €2.96Bn, leaving just €914 million left. With a capital call of €598 million that the bank says it needs to keep its balance books in the black, the mechanism has not yet run out.
The next amount to be injected into the bank from the Resolution Fund will be set this week. It is likely to be at least €430 million to cover losses from the sale of the bank’s position in Spain.
It should be noted that the bank’s overall market placement was preceded by the successful completion of an LME (“Liability Management Exercise”) on the bank’s senior bonds, allowing the creation of more than €200 million of capital and relevant future savings, and was accompanied by the creation of a Contingent Capital Agreement on problem assets under the responsibility of the Resolution Fund, up to a maximum of €3,8Bn which preserved 25% of share capital.
“Novo Banco’s administration has already stated that this year the bank will be in profit, and based on this assumption says it will probably not request more capital from the Resolution Fund on the back of the Contingent Capital Mechanism, but states there are risk factors such as the pandemic and moratoria.
“The bank’s restructuring was completed at the end of 2020” and “in future should consider opportunities to create value for its shareholders Nani Holdings (the Portuguese registered holding company that owns Novo Banco) and the Resolution Fund.
Novo Banco was established on 3 August 2014 as a transition bank to operate as such for a period of two years, later extended for a further year. This decision was made in accordance with the national rules of the banking resolution.
In 2017, the third full year following its creation, it ceased to be a transition bank and became a fully fledged credit Institution in the markets in which it performs.
This took place on 18 October with the formal entry of Lone Star funds into Novo Banco which, through a €1.0Bn capital injection in 2017 became holder of 75% of the capital.
Lone Star is a leading private equity firm advising funds that invest globally in real estate, equity, credit and other financial assets. Since the establishment of its first fund in 1995, Lone Star has organised 21 private equity funds with aggregate capital commitments totalling more than US$85 billion.
Hudson Advisors (a consultancy that provides services to Lone Star) advised Novo Banco in the sale of a portfolio of properties, dubbed Viriato, between 2018-2019 which made losses of €110 million. The chairman of Nani Holdings said that Hudson Advisors had in no way “pressured the bank into accepting losses (impairments).”
This and other issues concerning the perceived sell off of Novo Banco assets at allegedly bargain basement prices is one of the reasons why the parliamentary inquiry was set up.
Hudson Advisors is a globally integrated asset manager focused on real estate, credit, equity and other financial assets. Based in Dallas, Texas, it and its subsidiaries employ 900 people with some 50 clients which include some of the world’s largest private equity funds such as Lone Star.
At the end of 2017, Evgeny Kazarez began talks with Hudson Advisors, the company that provides advisory to Lone Star in various jurisdictions worldwide. He left Deutsche Bank and began working at Hudson in June 2018. At Hudson he and his team developed technology systems for Novo Banco.
In 2019 Lone Star contacted Evgeny Kazarez to become chairman of the board of Nani Holdings. It has no plans to sell Novo Banco for now.