LISBON (Reuters) - Portugal has agreed to sell a 75 percent stake in state-rescued lender Novo Banco to U.S. private equity firm Lone Star in exchange for a capital injection of 1 billion euros into the institution, the government said on Friday.
The sale was carried out ahead of an August deadline agreed with the European Commission and closes a banking saga which started with the collapse in 2014 of Banco Espirito Santo, at the time Portugal’s largest private bank.
Portugal injected 4.9 billion euros into the BES rescue, which at the time was the first such collapse to fall under new European rules on operations for failed banks.
Prime Minister Antonio Costa said the sale fulfilled a key criterion of not extending any state guarantees to the buyer, as had been raised earlier in the negotiations with Lone Star, and guarantees Novo Banco’s future.
“The operation has removed the specter of a liquidation, Novo Banco’s future to carry out its role of financing the economy is guaranteed,” the prime minister told journalists.
“There is no direct or indirect impact on public accounts, nor any new costs to taxpayers.”
Bank of Portugal governor Carlos Costa said the “sale is an important step for stability of the banking system.”
Under the deal, Portugal’s Bank Resolution Fund will retain the remaining 25 percent stake in Novo Banco, which is the bridge bank carved out of Banco Espirito Santo, which collapsed in August 2014. The country injected 4.9 billion euros, mostly via the resolution fund, into the “good bank”.
Under the terms of the deal, Lone Star will inject 750 million euros when the deal is formally closed and another 250 million within three years.
Also, Novo Banco will swap 500 million euros of senior bonds for new bonds as means to reinforce its common equity Tier 1 capital ratio before Lone Star takes over the bank.
The Bank of Portugal said a contingent capital mechanism will be set up to meet potential capital needs at the bank worth up to 3.89 billion euros, explaining that the mechanism did not represent any guarantee to cover any losses.
The sale is the end of a long process that started with the emergency rescue of BES, which at that time was Portugal’s largest listed bank. BES collapsed under the weight of the debts of its founding family and an investigation is still ongoing.
A first attempt to sell Novo Banco failed in 2015 as bids came in far below the rescue amount, stirring investor concerns about the already flagging banking sector’s contributions to the Bank Resolution Fund.
In March, the government extended the maturities on state loans to the resolution fund by nearly three decades to 2046 to avoid imposing extra costs on the banking sector.
The sale was also complicated by a decision, late in 2015, by the central bank to transfer some bonds from Novo Banco back to “bad bank” BES, thus boosting Novo Banco’s capital. A group of bondholders, including Pimco and BlackRock, have challenged the decision in the court.
Reporting By Sergio Goncalves, writing by Andrei Khalip, editing by Axel Bugge and David Evans