Lone Star Is Picked for Talks to Buy Portugal’s Novo Banco

  • Central bank got five proposals for Novo Banco in November
  • Sale is proceeding over two years after Espirito Santo breakup

Lone Star Funds was selected by Portugal’s central bank as the best-placed bidder to conclude talks on the purchase of Novo Banco SA, the lender that emerged from the breakup of Banco Espirito Santo SA.

The new phase of talks with Lone Star doesn’t exclude the possibility of other potential bidders improving their proposals, the Lisbon-based Bank of Portugal said in a statement on its website late on Wednesday. During the talks, an attempt will be made to minimize the potential impact on government finances that may result from Lone Star’s current proposal, it said.

“Clearly, given the tight timing, the price remains a sticking point -- and the thorny question of state guarantees,”  said Jonathan Tyce, an analyst at Bloomberg Intelligence in London. “How that is managed vis-a-vis state-aid rules will be interesting.”

Lone Star is proposing 750 million euros ($787 million) to buy all of Novo Banco and pledging to inject another 750 million euros in the bank, Portuguese newspaper Jornal de Negocios reported on Thursday. The proposal also involves the creation of a company to manage unprofitable assets, and this would benefit from a state guarantee, according to the newspaper.

Second Attempt

The Bank of Portugal has been seeking offers for the remnants of Banco Espirito Santo after saying bids submitted in a previous sale attempt two years ago were too low. In November, the central bank said it received five proposals for Novo Banco. Portugal wants to recoup some of the 4.9 billion euros used to rescue the lender.

Banco Espirito Santo, once Portugal’s biggest lender by market value, was bailed out in 2014 after regulators ordered it to raise more capital following the disclosure of potential losses on loans linked to companies in the family-controlled Espirito Santo Group. The central bank moved the lender’s deposits and most of its assets to Novo Banco.

Portugal’s Resolution Fund, which is funded by the country’s financial system, received a 3.9 billion-euro loan from the Portuguese state to secure the rescue. Any losses stemming from the sale will be paid gradually by the banks through existing contributions to the Resolution Fund.

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