Novo Banco Bonds Climb After ECB Stress Tests Beat Expectations

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Bonds of Novo Banco SA, the Portuguese bank that emerged from the breakup of Banco Espirito Santo SA last year, rose after results of the European Central Bank’s stress tests showed a smaller capital shortfall than analysts expected.

The state-owned lender’s 750 million euros ($805 million) of 4 percent notes due January 2019 rose 5.5 cents on the euro to 92.4 cents after dropping to a record 85.7 cents on Thursday, according to data compiled by Bloomberg. Bonds due May 2017 rose 4.5 cents on the euro to 93.8 cents.

Novo Banco’s 1.4 billion-euro capital hole compares with expectations of up to 2 billion euros, according to CreditSights Ltd. The Portuguese central bank said on Saturday that Novo Banco will address the shortfall in a few weeks with a plan that will include selling assets.

“The need for a capital injection should be reduced below 1.4 billion euros by whatever asset sales Novo Banco is able to complete,” John Raymond, an analyst at CreditSights, wrote in a note to clients. “Haircuts on senior debt cannot be ruled out altogether if things go wrong.”

The Bank of Portugal said it will resume plans to sell Novo Banco after halting the sale in September because bids weren’t high enough. The government won’t provide additional support to the lender, the European Commission said after the rescue of Banco Espirito in August 2014.