Novo Banco Says Common Equity Ratio Exceeded ECB Minimum

Novo Banco SA, the bank that emerged from the collapse of Banco Espirito Santo SA, reported a key measure of financial strength that exceeds regulatory requirements, offering an insight into its accounts as it seeks a buyer.

The bank’s Common Equity Tier 1 ratio, a measure of how well a lender can absorb losses, was 9.2 percent on Aug. 4, the day after Bank of Portugal seized control, Novo Banco said late yesterday. That exceeds the 7 percent set by the country’s central bank and the 8 percent minimum the European Central Bank used in its balance-sheet review of the region’s banks.

While the Lisbon-based bank didn’t participate in the ECB test because of its reorganization, the auditor, PricewaterhouseCoopers prepared its accounts to reflect the ECB’s asset quality review.

Concerns about the bank’s viability in July prompted a run on deposits, which stood at 25.1 billion euros ($30.9 billion) on Aug. 4, down from the 35.9 billion euros for Banco Espirito Santo at the end of June. The bank’s balance sheet is the first set of financial information disclosed by the lender and will provide possible suitors with an initial view on Novo Banco. The firm is also holding talks on the disposal of its investment banking unit.

August Bailout

“We have already recovered more than 2 billion euros of deposits in two months,” Chief Executive Officer Eduardo Stock da Cunha said in an interview on television station TVI after the bank’s statement. “It’s true, there was a movement of exit of deposits, but the people said, ‘We want to come back.’ ”

The lender had net assets of 72.5 billion euros on Aug. 4. Banco Espirito Santo said on July 30 it had net assets of 80.2 billion euros at the end of the first half. Its biggest non-state rival, Banco Comercial Portugues SA, had total assets of 78.8 billion euros at the end of September.

Banco Espirito Santo, once Portugal’s biggest lender by market value, was bailed out on Aug. 3 after regulators ordered it to raise more capital to cover potential losses on loans linked to companies in the family-controlled Espirito Santo Group. The central bank moved the lender’s deposit-taking operations and most of its assets to Novo Banco.

Following the 4.9 billion-euro bailout, the Bank of Portugal’s Resolution Fund now owns Novo Banco and the rescue is to be repaid by Novo Banco’s eventual sale. Junior creditors remained with the old bank, which is getting no state money, until it can be shut down.

Santander, BPI

Novo Banco’s coverage ratio, one of the highest in Europe, will give buyers a good deal of comfort, Paul Smillie, an analyst at Threadneedle Asset Management, said in e-mailed comments. The loan book has been reviewed and further impairments have been taken against bad loans, while coverage ratio at 87 percent is very good by European standards, he said.

Investors have until Dec. 31 to submit expressions of interest for Novo Banco, according to an advertisement published in local newspapers today. The Bank of Portugal hired BNP Paribas SA as financial adviser on the sale.

“Show me what’s in there and I’ll tell you if I’m interested,” Antonio Vieira Monteiro, head of Banco Santander SA’s Portuguese unit Santander Totta, said at event in Lisbon this week.

Besides Santander, Portugal’s Banco BPI SA and China’s Fosun Group have said they will look at Novo Banco’s sale. The Bank of Portugal said it expects binding offers for Novo Banco in the middle of the second quarter.

Novo Banco said today it’s already in talks with Haitong International Holdings Ltd., a Hong Kong-based firm owned by Haitong Securities Co. Ltd., to sell its investment bank, Banco Espirito Santo de Investimento SA.

The sale is subject to authorization from the Bank of Portugal, Novo Banco said in a regulatory filing in Lisbon. Shares in Haitong Securities were suspended and will resume trading in Shanghai tomorrow, the Chinese company said in a statement today.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE