Novo Banco Delegates Sale of Bad Debts to Ex-CFO

25 September 2018

Jorge Cardoso will leave his position as CFO to become the Chief Recovery and Investment Officer.

Jorge Cardoso will leave his position as CFO, to be replaced by Mark Bourke. Mr Cardoso, however, will continue to be responsible for Novo Banco’s divestments, sources at the financial institution stated. Those divestments include, in particular, the sale of non-performing real estate and loans.

A good part of those assets is covered by the Resolution Fund, which has a say in the sale.

Jorge Cardoso will thus leave his position has the bank’s CFO to become the Chief Recovery and Investment Officer.

Lone Star, which owns 75% of Novo Banco, has replaced Jorge Freire Cardoso as CFO with Mark Bourke. The Irishman, who had been the CFO of AIB, will replace Mr Cardoso at the beginning of next year. “Mark Bourke is expected to assume his new position at the beginning of next year, after completing his mandate at the AIB and after the authorisation by the European Central Bank,” the bank announced in a statement.

Mark Bourke was appointed to Novo Banco’s Board of Executive Directors in his new capacity as Chief Financial Officer (CFO) for the current term of office, “in a decision taken by the General and Supervisory Board,” the financial institution said in a statement.

What does Novo Banco have to sell?

The bank, according to recent reports, has a portfolio of nine thousand real estate assets valued at 700 million euros. The bank has asked Anchorage Capital Partners, Bain Capital Credit and Arrow Global Group to submit non-binding offers for the properties by early October. Alantra is advising the bank on the operation. The properties are not just the result of credit defaults.

During a presentation of the bank’s results for the first half of the year, Novo Banco stated that it would carry out two sales operations by the end of the year to clean up the institution’s balance sheet. The first portfolio, called Project Nata, will include NPLs, while the other, Project Viriato, will focus on properties.

Reporting on Novo Banco recently focused on the bank’s imminent sale of 1.75 billion euros in bad debts. Those NPLs account for approximately 19.8% of the bank’s total bad debts. According to the agency Debtwire, Alantra, KPMG and Morgan Stanley are advising Novo Banco on the operation. The sales will be divided into two parts: one, amounting to 550 million euros, relating to large loans to 54 major debtors; and the other, worth €1.2 billion, relating to 62,600 small debtors.

The Jornal Econômico reported that the law firm Linklaters is advising on the sale of the portfolio of smaller sized loans, while Garrigues is advising on the sale of the portfolio of larger debtors.

In its accounts for the first half of the year, the bank revealed that net overdue loans (NPLs) declined by 33% in just one year, from 32.1% (in June 2017) to 28.7% % in June of this year.

“Non-performing loans (NPLs) continued to decrease in the first half of the year, improving to a ratio of 28.7% (-3.4% compared to the same period last year) with provisioning of 63.0% (up 11.8% over the same period last year). The NPL ratio net of impairments decreased from 15.7% in June 2017 to 10.6% this semester, a reduction of about 33%,” the bank announced.

“Non-performing credit claims decreased to 28.7% (June 30, 2017: 32.1%, December 31, 2017: 30.5%), with impairment coverage increasing to 63.0% (June 30, 2017: 51.2%, December 31, 2017: 58.7%),” Novo Banco added.

In the first half of the year, impairments totalled €248.4 million, compared to €413.1 million in the first half of 2017. Loan impairment totalled 199.6 million euros, compared to €258.3 million in the same period of last year.

In the last quarter of 2017, Novo Banco had impairments of 2.057 billion euros, of which €1.229 billion were for credit losses, €135 million for securities, €398 million for discontinued operations and €134 million euros for restructuring provisions. The bank may only call upon the Contingent Capital Facility of the Resolution Fund should the sale of the loan portfolio cause losses above the current level of impairment.

Because of the impairments of last year and the size of the losses, the Contingent Capital Facility was activated at the end of the year, leading to compensation of 791.7 million euros. This was the amount that the Resolution Fund, which relied on a loan from the state, had to inject into the institution to maintain the bank’s financial strength. Because of these impairments, the bank recorded losses of €1.3954 billion in 2017.

In April, the Correio da Manhã reported that Novo Banco had recorded losses of around 500 million euros with loans relating to just eight debtors last year. Those eight companies included Promovalor, the real estate holding company owned by Benfica’s president Luís Filipe Vieira; the Lena Group; the Maló Group; the Moniz da Maia Group; the MSF Group; the Tiner Group; Prebuild and SCG, which is owned by João Pereira Coutinho. Those eight debtors represented approximately 24% of the 2.0569 billion euros in impairments recorded in 2017.

In an interview with Antena 1 and the Jornal de Negócios in April of this year, the CEO of Novo Banco said that “89% of our impairments are linked to companies.” He added that “we had more than 6 billion [in impaired loans] linked to the bank’s five biggest debtors. Today we have less than half that.” Ramalho said at the time that “the bank’s three largest debtors were all above one billion and at the moment we only have one that is above 500 million.” In the same interview, António Ramalho said that “all this is being reduced”, adding that “naturally this being accomplished through some payments, loan sales and some losses.” He added, however, that “most of the losses were not in Portugal. They were due to real estate investments in Brazil and Angola. ” “We also had some negative effects due to our exposure to a sector that had difficulties…, the Civil Construction and Public Works sectors,” he explained.

Original Story: Jornal Econômico – Maria Teixeira Alves

Photo: Cristina Bernardo

Translation: Richard Turner