Committing to record its opinion that Novo Banco is a financial minefield, accountancy giant PwC has put some distance between itself and any future claims from an eventual buyer that ‘the accountants should have known.’
Auditors' comments in the half-year accounts for Novo Banco include PwC’s recognition that there are contingencies in the accounts that simply are 'impossible to quantify.'
PwC sensibly has covered its collective rear by ensuring that every possible and probable liability is noted - but still there are contingencies arising from decisions taken by the Bank of Portugal when the old BES was split in two thus disadvantaging the unwitting and rewarding those in the know.
These remaining risks "are impossible to quantify," and so the true value of Novo Banco is an enigma. The actual value is the amount someone will pay for the bank but if there are too many unquantifiable risks the buyer will want a bargain price and/or indemnity from the government that the state will make up the difference when the various fiscal chickens come home to roost.
PwC identifies three areas of risks, the first being the risk of litigation because of court actions by investors in Portugal and overseas whose investments simply disappeared when BES was divided by Carlos Costa at the Bank of Portugal.
The second area is the subordinated debt issues by BES Finance, (€499 million). Novo Banco argues that it is not liable to repay this amount but several international funds think otherwise.
Finally, the PwC report comments that a tax rebate of €1.25 billion may not happen, certainly not in full, as it depends on ‘future positive outcomes’ and anyway is over-optimistic "given the economic climate and the fact that Novo Banco is a ‘bridge’ bank."
In short, the PwC audit concludes that the consolidated balance sheet for Novo Banco as of June 30, 2015, is overvalued "by an amount that we are unable to quantify with reasonable assurance," given the number of factors involved.
PwC notes the bank will need a capital injection of at least €1 billion, maybe more, when the results are in for the next European Central Bank ‘stress tests’ this autumn.
The new owner, if Novo Banco is sold on, will have to pump in the extra billion.
If there is no sale of Novo Banco this year, the Resolution Fund will have to find the money to recapitalise the bank. This itself will drain Portugal’s high street banks of more liquidity.
The accountants appear to be acting straight down the line - amazing what the fear of litigation can do.
As for China's Fosun and the US venture capital fund Apollo which both remain willing to buy Novo Banco, 'caveat emptor...'
Comments
Clearly any loss with Novo Banco will have to go on Portugal's 'balance sheet' and make their deficit ie borrowings look even worse. Possibly 3 times what Brussels is looking for. It all hinges on what is and what is not declared 'on sheet'. But then Mr IMF when clearing his desk last week muttered exactly the same thing.
That far too much of Portugal's public and private debt, even today, was not anchored on anything more than dreams - if that. The presumed value of a finished tourism complex; a completed dockyard or industrial estate etc Yet these were never completed because so much was pilfered along the way.
And the Public Private Investment partnerships were discovered to be a total joke. Special people getting paid millions rain or shine. But none of it 'on balance sheet'.
So the Troika made the wrong assessments. And years later were often still waiting for a detailed summary of what went missing. And the adolescents here, as in Greece, then blame the Troika !!!
As though the Troika should have realised before arriving that they were to be dealing with children with their secret friendships, favoured friends and passwords! Not grown up adults behaving responsibly.