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Novo Banco to Sell €1.75 Billion in Bad Debts

6 September 2018

The bank, which is helmed by António Ramalho, began a process of selling a large portfolio of non-performing loans. The value of the portfolio amounts to 1.75 billion euros.

Novo Banco is in the market to sell bad debts. The financial institution led by António Ramalho has begun the process of selling a portfolio of non-performing loans valued at €1.75 billion, according to sources quoted by DebtWire. Potential buyers will be able to place bids in October.

Debtwire stated that the portfolio to be sold, the largest ever to be marketed in the Portuguese market, consists of two tranches of corporate securities. The first one amounts to 550 million euros and contains loans to 54 large companies, while the second tranche of 1.2 billion contains non-performing loans to more than 62,000 companies.

The bank, which declined to comment, hired Alantra, KPMG and Morgan Stanley to market the portfolio. Novo Banco is already, according to sources close to the process, contacting potential investors.

Novo Banco, which resulted from the bailout of Banco Espírito Santo in 2014, owns high levels of non-performing loans. According to the bank’s accounts for the first half of the year, total outstanding loans amounted to 30.7 billion euros, 28.7% of which were in default.

The bank has pledged to the Bank of Portugal that it would continue “cleaning up” the balance sheet, a process that involves not only the recognition of losses, which explain the bank’s recent negative results but also the sale of the loans in an attempt to recuperate some of the losses. The latest data point to an NPL coverage ratio of 63%.

In the first half of this year, Novo Banco recorded losses of 231 million euros. At the end of last year, the net result was -€1.395 billion, a result that forced the Resolution Fund to inject about €800 million into the bank’s capital. The Portuguese state also lent around €400 million to the Fund.

Considering the loan to the Resolution Fund, Portugal’s budget deficit reached 1.6% in the first semester, according to an estimate by the Technical Budget Support Unit (UTAO). UTAO experts expect it that loss to be diluted during the rest of the year, allowing Portugal to hit its targets for the year.

Novo Banco has a kind of capital buffer provided by the state, which had pledged to cushion the bank from excessive losses resulting from the non-performing loans it took on when the American fund acquired a 75% stake in the bank. So, whenever Novo Banco’s capital ratio falls beneath 12.5%, the Contingent Capital Facility, through which the state guarantees, where appropriate, loans to the Resolution Fund, is activated.

For 2018, Lone Star negotiated with the Portuguese government that loans from the state could not exceed 850 million euros. Expectations are that the Resolution Fund will be tapped again in 2019, but for a lesser amount, considering forecasts for Novo Banco next year.

Original Story: Economia Online – Paulo Moutinho

Translation: Richard Turner