Portugal Said to Have Opposed Central Bank Over Novo Banco

  • Felix told investors that concerns were expressed, people say
  • Bond prices tumbled after debt was shifted to bad bank

The Portuguese government said it was against the central bank’s decision to impose losses on some Novo Banco SA bondholders, according to two people familiar with the situation.

Finance Secretary of State Ricardo Mourinho Felix told investors on Monday that the ministry had expressed concern to the central bank about the transfer of bonds to a bad bank, said the people, who asked not to be identified because the discussions were private. Pacific Investment Management Co. and BlackRock Inc., the biggest holders of the debt, were among investors at the event in London, people said.

Bondholders were blindsided by the transfer of about 2 billion euros ($2.2 billion) of Novo Banco senior notes because the Bank of Portugal had previously said it could fill a capital shortfall through measures including asset sales. Novo Banco emerged from the 2014 breakup of Banco Espirito Santo SA.

Felix said the government didn’t interfere in the debt transfer because of central bank independence, according to the people. The event was focused on sovereign debt rather than Novo Banco, the people said. Portuguese Finance Minister Mario Centeno, who was listed on an invitation, didn’t attend, they said. Morgan Stanley arranged the meetings, they said.

Officials at the Portuguese finance ministry weren’t immediately available for comment. A central bank official declined to comment on the finance ministry’s concerns. Spokesmen for Pimco, BlackRock and Morgan Stanley declined to comment on the event.

European Central Bank

The European Central Bank “neither requested nor approved a bail-in of senior bondholders,” according to a statement. The decision was taken “exclusively” by the Bank of Portugal under its national bank-resolution powers, the Frankfurt-based institution said on Wednesday.

The Bank of Portugal announced it was moving the Novo Banco bonds to Banco Espirito Santo on Dec. 29. Prices for the notes subsequently plunged to around 10 cents on the euro from more than 90 cents, according to data compiled by Bloomberg.

An industry committee on Tuesday failed to reach a ruling on whether credit-default swaps insuring Novo Banco debt should pay out because of the bond transfer. The issue has been referred to an external panel, the International Swaps & Derivatives Association said.

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