Bank of Portugal Says Goldman Loan Fight Harms Novo Banco Sale

The Bank of Portugal said Goldman Sachs Group Inc.’s legal fight over an $835 million loan to Banco Espirito Santo SA before it collapsed may disrupt attempts by the central bank to sell its successor, Novo Banco SA.

Goldman Sachs is seeking a Lisbon court order putting the status of the Oak Finance Luxembourg SA loan vehicle on hold until a dispute over what entity owns the debt is resolved, according to a Bank of Portugal document that was filed at the tribunal and obtained by Bloomberg News.

“That disruption, at a time of a crucial stage of collecting definitive offers from potential buyers, would not only create uncertainty as to the configuration of the balance sheet of Novo Banco, but it would also subject the buyer to significant future risks of litigation,” the Bank of Portugal said in the document, dated April 17, which outlines a resolution by bank directors.

The Bank of Portugal’s 4.9 billion-euro ($5.3 billion) rescue of Banco Espirito Santo in August split the stricken bank in two, with depositors and healthy assets joining Novo Banco while bad loans and junior creditors stayed with the old bank. Oak Finance was set up by Goldman to lend about $835 million to Banco Espirito Santo weeks before its failure.

Goldman and a group of investors in Oak Finance have filed lawsuits in the U.K. and Portugal seeking to ensure the debt is transferred to Novo Banco. Oak Finance investors face significant losses if the vehicle remains in the bad bank.

Sebastian Howell, a spokesman for Goldman Sachs in London, declined to comment. A Bank of Portugal spokesman declined to comment.

The Bank of Portugal initially transferred Oak Finance’s debts to Novo Banco before reversing its decision in December. It has invited five bidders to make binding offers by the end of June for what was once Portugal’s biggest bank by market value. The proceeds will be used to repay the costs of the bailout.

If the Bank of Portugal’s December decision regarding Oak Finance was suspended, the uncertainty would create “negative effects on the confidence of potential buyers with an impact on their offers,” the central bank said in the document.

The delay in implementing the measure would also create inequality between creditors of the same type and increase the costs with the capitalization of Novo Banco, the Bank of Portugal said.

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