Parliament approves date extension of Novo Banco inquiry

 In Banks, News, Resolution Fund

The Portuguese parliament has approved extending the date limit of a public inquiry into alleged mismanagement at Banco Espírito Santo which collapsed in 2014 and its successor Novo Banco which was saddled with crippling toxic debts as a result.

The Novo Banco commission of inquiry was granted a two-month extension on Friday. It was supposed to have been wrapped up by May 28.
The decision to once again extend the timeframe for the hearings by the parliamentary inquiry into debts recorded by Novo Banco and attributed to the Resolution Fund was unanimously approved. The inquiry was extended for 60 days starting from 28 May.
This was done to carry out the auditions that have yet to be undertaken, as well as summing up and evaluating all of the information which will be discussed before a final report into the inquiry findings is issued by the end of the summer.
At the latest hearing on Tuesday this week, the inquiry heard from the president of the Novo Banco Supervisory Commission, João Bracinha Vieira who told the hearing “To date I have always seen impairments based on perfectly objective facts, in circumstances that have to do with the non-execution of business plans, the loss in value of collateral, and from those circumstances that should lead to the creations of provisions”.
In other words there was nothing shady, misleading or irresponsible about the impairments or how they were assessed.
The president of the Supervisory Commission, a body that supervises the Contingent Capitalisation Agreement (CCA) signed when Novo Banco was sold to the US equity fund Lone Star in 2017, gave his statements to Portuguese MPs on the board of inquiry.
Brachinha Vieira admitted that he had witnessed with some alarm the way the impairments were made. Regarding the process of evaluating the impairments, there are “one of two cases that are the exception, the absolute exception, whereby the process raised some doubts”.
Whereas there are rules which govern the constitution of impairments, there is a small coefficient which has to do with a subjective appreciation of the facts, the rare cases where the resulting impairments were excessive “I should say that this was exceptional,” said José Bracinha Vieira.
He went on to say that given that the “cleanup on the (bank’s) balance sheet was so thorough” at Novo Banco, there could be a “partial reversal of the impairments made in the future.”
Rounding off the hearing on Tuesday, José Brachinha Vieira also referred that since the CCA was setup, until the present, he had only seen debt recoveries from debtors amount to €2.6Bn, while recoveries from the sale of liquid impairment assets stood at €1.4Bn. The total value of recovered debts by the bank’s CCA was €4.0Bn, more than the €3.7Bn in definitive losses, a difference that the president of the CCA was at pains to stress.
José Brachinha Vieira has also said that he expects that a reversion of impairments should occur after 2026.
By then the CCA will no longer be active and it may no longer be possible to repay the money to the Resolution Fund which has been injected into Novo Banco.
However on this question, José Bracinha Vieira said that repayments to the Resolution Fund would depend on the amount of money to be repaid but said that that scenario was unlikely, believing the outstanding amounts would be low in any case.
The latest loan for Novo Banco from the Portuguese banking sector paid into the Resolution Fund to finance the bank was formalised on Monday and totalled €475 million which can be used by 2022.