Public spending body admits fresh cash handouts for Novobanco

 In Banks, News, Regulators and Supervisors, Resolution Fund

The entity that supervises public spending on public companies has admitted that Novobanco may need fresh cash injections from the public purse.

The Tribunal de Contas – Portugal’s supreme audit body headed by José Tavares – says more capital injections into the bank might be required, contradicting the Minister of Finance’s affirmation that the “State will not make more injections through the contingent capital mechanism (Resolution Fund) and that the Novobanco dossier “was closed” regarding more handouts to shore up its balance sheet.
But the Prime Minister, António Costa stressed again on Thursday that Novobanco will not receive a red cent more of public money.
The matter was discussed at a parliamentary hearing which was meant to focus on the new Lisbon airport, the next State Budget, and disagreements over reducing IRC to help companies after the pandemic deal with current energy crises.
The US fund Lone Star which currently owns a 75% stake in Novobanco is said to be looking to sell the bank in the long term as a going concern, but the word ‘concern’ may have a different connotation for prospective buyers.
The bank recently sold its prime real estate headquarters on Lisbon’s Avenida da Liberdade for a tidy €112.2 million. It was bought by Merlin Properties.
A legal councillor or ‘rapporteur’ at the TdC which oversaw a public audit into the way Novobanco and its directors managed the bank’s affairs, José Quelhas remarked on Tuesday in parliament that the scenario of fresh capital injections into Novobanco could not be ruled out.
Both he and José Tavares were called to a parliamentary hearing this week following a petition from the centre-right PSD party on the TdC audit report into the public financing and management of Novobanco.
In his reply, José Quelhas admitted that new injections of capital could be required if a capital back-stop became necessary and if legal fights currently going through the courts (two in arbitration courts) which oppose Novobanco and the Resolution Fund from receiving more public funds, could end up with decisions which are not favourable to the Fund.
The TdC report into Novobanco has advised that Novobanco may need more funds to assure its viability which has been undermined by the pandemic and the War in Ukraine by actioning the Additional Capital Mechanism (capital backstop) up to €1.6Bn foreseen in commitments made by the Portuguese State to assure the bank’s viability.
The total cost to the Resolution Fund and Portuguese State of financing Novobanco is nearly €3.4Bn. The Governor of the Bank of Portugal, Mário Centeno, past finance ministers, and the former CEO of the bank, António Ramalho all argued at different times that the cost of allowing the bank to fail would have been over €11Bn.