Bank of Portugal “cleans” Novo Banco’s accounts to the tune of €1.985 billion

In a move that has been described as “purely an accounting measure”, the Bank of Portugal has just transferred €1.985 billion in what is termed “best quality debt” from good bank Novo Banco to ‘bad bank’ BES, which will now finally go into liquidation.

The decision, explains Reuters news agency, “will help boost Novo Banco’s balance sheet” by (no prizes for guessing) €1.985 billion.

“The measure will mean that a series of bonds transferred to Novo Banco at the time of the rescue (in 2014) will be removed from its balance sheet and sent back to BES,” said Reuters.

MPs have since told journalists that none of Novo Banco’s account holders will be affected, nor will the transfer rebound on Portugal’s taxpayers, as ‘damages’ this time fall on “institutions”, all of whom had apparently seen this scenario coming.

The Bank of Portugal’s decision followed the discovery of a €1.4 billion “hole” “identified last month in the bank’s capital by the European Central Bank”, adds Reuters.

With the hole now well and truly plugged, Novo Banco’s disastrous sale process – pulled in September as all bets were considered too low – will now be relaunched.

In a statement put out by the Bank of Portugal, January has been given as the new date, and, as Reuters suggests: “The resolution of the capital shortfall could represent the lifting of an important hurdle in the sale.”

What no one appears to be mentioning at this point are legal actions pending over so-called toxic debt bundled away in BES. These include an €835 million suit launched by investment bankers Goldman Sachs and backed by a New Zealand Superannuation Fund which “lost” €150 million in the BES “good bank/bad bank” carve up.

UPDATE: Within hours of this news coming through, ATM – the national association of market investors and technicians – had declared the move “manifestly illegal” and were preparing for court action.

By NATASHA DONN natasha.donn@algarveresident.com