CGD Prepares Sale of €250-Million in Bad Debts to Individuals by the End of Year

31 October 2018

Paulo Macedo announced that CGD would begin the sale of a portfolio of consumer loans worth 250 million euros by the end of the year. The bank’s president also said that he expects Comporta to be sold to the Vanguard/Amorim consortium.

After Caixa Geral de Depósitos closed the sale of a €825 million (gross value) portfolio of defaulted loans to companies to Bain Capital in October, Paulo Macedo announced that the bank would also arrange for the sale of a 250-million-euro portfolio to loans to individuals by the end of the year.

“By the end of the year, we expect to complete a sale of a portfolio of loans to individuals, of around 250 million euros; the process is underway,” Caixa’s CEO stated during a presentation of the bank’s third-quarter results.

The bank stated in its reports and accounts for the first half of the year that CGD’s Board of Directors was finalising negotiations over an agreement to sell a portfolio of corporate loans, “whose nominal  value in March 2018 (cut-off date of the transaction ) amounted to €854 million.” “This portfolio [of 854 million euros] incorporates operations in the amount of 214 million euros, which had already been stricken from the balance sheet in June 2018,” the bank added.

The restructuring, recovery, and sale of loans of this type of asset are essential for CGD.

Mr Macedo highlighted the improvement to the quality of assets, with a reduction of the NPL (non-performing loans) ratio to 9.6% (taking into account the sale in October, without which the NPL ratio would be of 10.5%) and the reinforcement of the coverage level. The bank also maintained its low cost of credit risk which stood at 0.26% (annualised). “Net credit impairment stood at €116 million in the third quarter,” said CGD’s CEO.

Paulo Macedo favours the sale of Comporta to the Amorim/Vanguard consortium

Paulo Macedo stated that the sale of the Herdade da Comporta Fund’s assets is “a very serious matter, which Caixa is following very closely.” The executive praised the agreement between Gesfimo and the Amorim/Vanguard/Port Noir consortium.

“Caixa noted with satisfaction the signing of this agreement with the Management Company [Gesfimo],” Mr Macedo said, adding that the agreement still must be approved in a shareholders’ meeting. “What we’re going to do is make sure that we defend Caixa’s interests. In other words, we are not looking for anyone who will contest or do any kind of less appropriate act in the sense of harming the creditors or the development of the project itself, ” CGD’s chief executive said.

The Special Closed Real Estate Investment Fund that holds Herdade da Comporta’s assets has €119.4 million debt to CGD and has not paid interest for four years. The fund was created about five years ago, with the goal of starting up with two tourism projects – Comporta Links and Comporta Dunes, both of which are now for sale.

“I can say that we are pleased with the first step and that we are following a legally complicated operation very closely. We, therefore, intend to talk to all parties… to make sure that we arrive in a good place. That may not be possible… because this is a very delicate operation,” he said.

“We expect to complete the sale Comporta and not leave it in a legal morass,” he said.

The Amorim/Vanguard/Port Noir consortium signed an agreement to acquire the assets. That agreement must be ratified in the Shareholders’ Assembly (holders of units of the Fund) on November 27. The Fund Management Company, Gesfimo, will also have to communicate the terms of the agreement, given the situation of the Herdade da Comporta Fund which is mostly owned by Rioforte (in liquidation) and Novo Banco, to the Public Ministry and the Central Criminal Investigation Court.

Rating and Paulo Macedo’s priorities

The bank’s CEO highlighted that fact that Moody’s has increased CGD’s rating from Ba3 to Ba1, up two levels, in October. In just one year, the agency raised CGD’s rating by three levels (the first was in February). The most important step the bank needs to take to move up to an investment grade rating is to reduce its exposure to NPLs. CGD needs the investment grade rating to conduct specific transactions, such as granting guarantees, letters of documentary credits and accepting certain types of deposits.

The reduction is, therefore, one of CGD’s top priorities, “because there is a lot of business that Caixa does not do, namely support for Portuguese companies because it does not have the investment grade rating.”

The bank’s hopes for an increase in its rating is being fuelled by the credit agency’s positive outlook for the state-owned bank.

In September, CGD managed to sell a considerable number of properties it held for sale, a reduction of €147 million, presaging an acceleration of the deleveraging of these non-core assets. In June the bank had 979 million euros of real estate for sale, with impairment coverage of 44%. In September the value of real estate for sale was €832 million (45% coverage for impairments).

CGD held something like 20,000 properties, directly and indirectly (number determined by an outside entity) and has to free these properties, said the bank’s CEO. These properties are already at market value, and are sold at market value, the banker said.

Last year, the bank sold 2,100 properties for 182 million euros from January to September. In the first nine months of this year, CGD sold 3,800 properties for €290 million. The bank’s goal is to substantially increase the sales of such non-bank assets, up to total sales of €500 million, he said. He list of properties includes those received in lieu of payment and other properties owned by the bank.

The bank led by Paulo Macedo has also stated that it will continue on its focus on internet banking, in which it is a leader, for security reasons. The bank intends to replace the traditional passbook with a digital passbook.

“The number of active customers who use digital platforms, whether internet banking or the Caixadireta app, already reached 1.55 million customers in Portugal by the end of September (1.99 million in total. The number of people who access the smartphone app is already superior to the number of people that access through the browser,” the bank’s CFO, José de Brito, said during the presentation.

“There are about 300,000 customers who access Caixa through digital channels daily,” the executive said. The bank already has 600,000 people using its Caixadireta app.

Original Story: Jornal Econômico – Maria Teixeira Alves

Photo: Cristina Bernardo

Translation: Richard Turner