Resolution Fund and Novobanco broker agreement to end relationship
The Resolution Fund and Novobanco have now reached a “principle of understanding” for the early termination of the Contingent Capital Agreement (CCA), paving the way for the bank’s sale or floatation on the stock market.
The fund, led by Luís Máximo dos Santos, has already delivered to the Ministry of Finance a draft of the contract negotiated with the bank controlled by US fund Lone Star, according to Online news source ECO.
A decision on the final process is now in the hands of Finances minister, Joaquim Miranda Sarmento, and the process is likely to be completed in the next few weeks.
Early termination of the CCA, which will end only at the end of next year if there is no agreement, is important for all parties. First of all for the Resolution Fund, because it ends the uncertainty of having to pump more funds into the bank. It has already injected more than €3Bn to support Novobanco since 2017 to cover losses inherited from the collapse of Banco Espírito Santo in 2014, and to maintain Novobanco’s capital ratios.
For Novobanco (and Lone Star, which controls 75% of the bank), the early end of the agreement will allow it to unlock dividends and open the door to the sale of the institution — apparently through an Initial Public Offering (IPO) to take place next year.
The other 25% of the bank’s capital is in the hands of the Resolution Fund (13.04%) and the General Directorate of Treasury and Finance (11.96%), which will also have to gain from the distribution of results and the sale of the bank.
The CCA aims to protect Novobanco’s capital ratios from losses that are recorded in a given set of assets. Under the terms of the mechanism, the Resolution Fund makes a payment to Novo Banco if losses occur in the portfolio of covered assets, but only in the amount necessary for Novobanco’s capital ratios to remain at the agreed level.
Resolution Fund payments were, in any case, capped to a maximum of €3,8Bn for the total period that the mechanism has been in operation.
