As we went to press on Wednesday, the clamour over the “ruinous” sale of Novo Banco to American equity firm Lone Star Funds had finally honed in on the nitty gritty: the sale may never get off the ground.
The problems stacking up on the horizon include the need to ‘get authorisation’ from the European Central Bank, from Europe’s competitions authority and from investors who, yet again stand to lose a fortune.
If any of these provisos fall, the deal will be scuppered.
Observador news website laid the facts out starkly when it explained that one of the biggest problems of the sale - described by those that back it as “the least bad option” - is that it leaves the State giving a guarantee (which it always said it wouldn’t) from a Resolution Fund that “does not have any money”.
As critics have interpreted, this “least bad option” actually just “pushes the problem forwards by a few years”.
President Marcelo has attempted to dress things up by telling people: “It is the banks that really in 30 years, if this is possible, will pay the difference, which we hope will be the minimum possible”.
But the window dressing is falling.
MPs were due to debate the issue in parliament as the PCP has already presented a resolution for the bank to be nationalised, while small and large investors are seeking legal advice over actions that could block the sale.
Novo Banco staff too are ‘up in arms’, as they see the writing on the wall. Lone Star Funds will almost certainly cut yet again at the organisation that was lopped at the knees with “amicable dismissals” last year.
People’s paper Correio da Manhã has put the deal that sees Lone Star ploughing €1 billion into the bank in exchange for 75% control while the State guarantees credit risks up to €3.9 billion and retains 25% as “like a citizen investing €490,000 in a house, and less than two years later giving three bedrooms to an investor who pays nothing, but simply promises to inject €100,000 in two phases, the first being €75,000.
“Meantime, the original owner (the citizen) retains all the risks if anything goes wrong”.
Público has described the proviso for a €500 million voluntary bond swap as “a kind of sword above the heads of Novo Banco investors”.
It could come in the form of a revision of maturities, a revision of interest payments or “even a haircut”, says the paper.
The Catch 22 is that investors will be ‘damned’ either way.
This is a story that will kick up dust for days to come, and today’s debate in parliament is certain to show up even more cracks looming on the horizon.
By natasha.donn@algarveresident.com
Article by kind permission of Portugal Resident
Comments
There is a world of difference from the 2008 crash triggered by legal but high risk trading primarily in US sub-prime mortgaging secured on property whose valuations were not calculated to fall at the time or speed they did .... and totally 'irregular' unsecured lending.
The south European banks are awash with this kind of unrecoverable lending and the ECB - spending or pledging northern EU tax payers money - now owns 11/2 trillion euros of it !
So instead of taking responsibility and grasping the nettle by protecting depositors and allowing bank bond holders and shareholders to accept the risk they took by investing in a bank, these incompetent dysfunctional politicians just keep putting another taxpayer funded band aid on a gunshot wound and hoping it will stem the blood flow until someone else can be saddled with the responsibility.
https://www.bloomberg.com/view/articles/2017-04-05/europe-s-addiction-to-bailing-out-banks