Governor of the Bank of Portugal warns of “systemic effect” if CGD buys Novobanco

If State-owned  bank Caixa Geral de Depósitos buys Novobanco it could have systemic consequences for Portugal’s banking and financial sector warns the Governor of the Bank of Portugal, Mário Centeno.

“Caixa is a very important bank, but this also brings responsibilities. It is a business decision with systemic consequences that must be analysed”, said Mário Centeno in an interview with Reuters.

In other words, he meant it would create a public mega bank that would dominate as much as one-third of the market.

On the other hand, the head of the central bank said he is in favor of an initial public offering (IPO), considering that this option would be beneficial for the national financial system.

“An initial public offering would be a good outcome for the competitiveness of the Portuguese banking sector,” he said, adding that the listing of the fourth largest national bank would be positive because there is only one listed financial institution – BCP.

Meanwhile, BCP’s CEO, Miguel Maya says that it is “more likely that something will happen in 2025” with Novo Banco and that BCP will “look at it and consider whether it is appropriate to study” a possible purchase.

Speaking on the sidelines of the presentation of the Real Estate Observatory 2025, with the presence of the CEOs of Portuguese banks, Maya underlined that “BCP has an organic growth strategy”.

“We look at the operations when they go to the market and see if they make sense or not, and in what terms they make sense. That’s what we’ll do at the appropriate time,” he commented, quoted by Bloomberg.

However, apart from an IPO, the government is concerned that if Novobanco was directly sold, it could end up in the hands of the Spanish which the government would prefer not to happen.

The focus of the main shareholder, US vulture fund Lone Star (75%) is to sell up to 30% of the capital on the stock exchange, but the signs of interest in a direct purchase by competitors have been increasing. Caixa Geral de Depósitos, BCP and Caixabank are three of the names involved.

And this concern, which has already led the Minister of Finance to instruct CGD to study the purchase scenario, is justified by the numbers.

Novo Banco represents a total of almost 10% of the assets of the national financial system: at the end of September, it accounted for around €45.6Bn in assets, which compares with approximately €464Bn in the system as a whole, according to data from the Bank of Portugal (BdP).

This amount, in a scenario of Novo Banco being controlled by a Spanish entity, would be added to those of Santander Portugal (€56.4Bn, 12% of the total) and BPI (€39.5Bn or 8.5%), whose sole shareholders (Santander and Caixabank, respectively) are based in the neighbouring country.

In this scenario, in which three of the largest national banks would have shareholder structures dominated by Spain, 30.5% of the total assets of the system would be controlled by Madrid.