PwC looks into €112M Novo Banco injection

The Resolution Fund which has provided cash to keep Novo Banco’s capital ratio levels financially viable since 2015, has hired PwC to decide if the bank needs to draw on €112 million from the fund.

Consultants PwC will evaluate a €112 million cash injection via the Contingent Capital Agreement which was agreed as part of the sales process of Novo Banco to the US equity fund Lone Star in 2017.
As agreed during the sale process of Novo Banco, a Contingent Capital Agreement (CCA) was entered into between the Resolution Fund and the bank. Under the terms of the agreement Novo Banco was and is to be compensated up to €3.89Bn for losses recognised in a predefined portfolio of assets (CCA Assets) and other CCA covered losses (CCA Losses) in case the capital ratios decrease below a pre-defined threshold (Minimum Capital Condition).
This meant a Minimum Capital Condition: CET1 or Tier 1 SREP requirement plus a buffer for the first 3 years (2017 – 2019) CET1 < 12%. The duration of the mechanism is set at approx. 8 years, until 31 December 2025 (the “CCA Maturity Date”), the date of which can be extended by one additional year should the net book value of the CCA Assets not fall below an agreed level.
PwC has been hired to evaluate Novo Banco’s management option for an interest rate risk cover from 2019 when the bank’s capital requirements went up in 2020 which was set out in a Deloitte audit report.
In question is the sum of €112 million that has raised eyebrows at the Ministry of Finance, with the minister of Finance, João Leão blocking this part of a €429 million cash injection from the Resolution Fund which was agreed under the terms of the Contingent Capital Agreement and authorised by the Council of Ministers.
Once the evaluation is complete, PwC will then send its recommendations in a report to the Resolution Fund for consideration.