BPI's offer to buy Novo Banco rejected as 'too low'

The ‘low price’ offered by Fernando Ulrich at Banco Português de Investimento (BPI) for Novo Banco, owned by the taxpayer, has been firmly rejected by the Bank of Portugal.

Under the offer terms, Ulrich can ask for ‘clarification’ of the decision anytime before the weekend but it is unlikely that he will forward a sweetened proposal or raise his price as BPI also is engaged in a complicated and distracting takeover bid from Spain’s Caixa Bank.

BPI is not the only candidate that, for whatever reason, no longer is in the frame to acquire the healthy assets of the defunct Banco Espírito Santo.

A total of 17 companies registered their interest in buying Novo Banco before the deadline of 17.00 on New Year’s Eve 2014.

The mixed bunch that remains; Appollo Global Management, Fosun, Santander, Anbang Insurance and Cereberus, will by now have submitted their non-binding proposals for Bank of Portugal analysis.
 
In all, seven institutions submitted Round One proposals for the purchase of Novo Banco so one other unnamed institution also has been rejected but it is not known on what grounds.

Ulrich is an experienced operator and his offer price will have been a well considered one which bore in mind the mess that taxpayer owned Novo Banco is in.

Not only was the first Chief Executive Vítor Bento ousted after just two months, there are unquantifiable claims lodged in court by institutions and groups of angry individuals who claim Novo Banco is responsible for large chunks of BES debts, and that they would like to be repaid.

If these court processes are successful the sums involved represent a considerable risk of many hundreds of millions of euros. The Bank of Portugal considers that this risk will be attributable to the "bad" bank BES, while Minister Maria Luís Albuquerque said in Parliament that the risk of litigation should be reflected in the sale price of Novo Banco, which clearly it was in the BPI bid, rejected by the Bank of Portugal 'pour encourager les autres.'

Novo Banco’s current boss, Eduardo Stock da Cunha, did himself no favours when in March he announced, from the safety of London, a five month loss at Novo Banco of €460 million while professing that he had no idea how much the bank was worth and that he did not trouble himself with such details, refusing to answer further questions.

In October last year, Prime Minister Passos Coelho commented on the planned sale of Novo Banco, saying, "If losses come into existence they will have to be supported by the financial system.”

This was a change of message from his August statement that there would be 'no losses for taxpayers' if the sale price is below that needed to recoup the taxpayer loan and the state owned Resolution Fund injection into Novo Banco of €4.9 billion.

Despite Novo Banco being owned by the taxpayer, the state borrowed €4.9 billion to float the bank and consign BES to the scrap heap, the Treasury had distanced itself from the sale in case it all goes horribly wrong, the government says it is a matter for the Bank of Portugal (as if this was not a state institution) and the Bank of Portugal waits nervously for a knock-out bid from some rich foreign institution which can not add up. 

Unless there are huge indemnitites offered to the bidders to cover them in case of a bad day in court by claimants, the prices offered in the final bids will by necessity be below Bank of Portugal expectations and certainly below the €4.9 billion needed to cover the taxpayers' enforced largesse.  

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