Negotiations between Resolution Fund and Lone Star stall over future of Novobanco

Negotiations between the Resolution Fund and the US asset management company Lone Star have stalled over the future of Novobanco.

The end of September was forecast as the time when negotiations – between the fund set up to provide capital injections into the bank since its creation in 2014 and the US equity fund – to dissolve the contingent capital agreement so that the bank could be privatised would have been completed.

However, without agreement the process looks set to drag on to the end of the year. Lone Star invested €1Bn into the new bank forged from the remains of failed bank Banco Espírito Santo, in 2017. It is expected that Lone Star could walk away with a €3-4Bn return on its investment.

Dissolving the contingent capital mechanism, under which over €3Bn was injected into Novobanco over a decade, which, when added to State money, totalled around €8Bn, would be necessary to privatise the bank either by selling it to a private investor, such as another major bank, most likely Spanish or even Portuguese, or by floating the bank on the Lisbon Stock market Euronext Lisbon.