No “documented reason” for Novobanco Spain selloff

There was no documented reasoning to explain Novobanco’s decision to sell off its subsidiary bank in Spain according to a report on the findings of an audit carried out by Deloitte.

The sale was a thorny issue between Novobanco and the Resolution Fund because the amount called ended up by being far greater. The bank generated impairments of €166 million which resulted in the bank requesting €147 million on the back of the contingent capital mechanism.
Deloitte says that the rationale for the decision taken by the administrative board to divest its interests in Spain, including terminating a restructuring project the bank had begun in 2019, is not documented.
Initially the bank was to restructure its Spanish operation, but the board changed its mind and decided to sell off the business that only made losses, and focus instead on its operations in the Portuguese market.
On the other hand, the bank expected that the losses from the sale of the Spanish operation would be “cancelled out” with the freeing up of capital that the sale operation would have enabled. It was expected that the operation would be wound up in 2020, but it didn’t happen, and the capital was only freed up in 2021.
The Resolution Fund – which was set up by the Portuguese government to save the failed Banco Espírito Santo’s good assets — believes that this time lag caused an “artificial increase in the bank’s capital needs in 2020”.
The Novobanco monitoring commission agrees with the Resolution Fund noting that in executing the CCA in good faith (…) this “may have led to the impairment amount of €166.0 million because of the cessation of Novobanco operations in Spain, which were not taken into account for the 2020 (request from Resolution Fund) call”