Beleaguered Bank of Portugal justifies Novo Banco sale fiasco

Vilified in the nation’s press for failing on his promise to sell Novo Banco quickly and to the highest bidder, governor of the Bank of Portugal Carlos Costa is doing his best to emerge from the fiasco smelling of roses.

An article in Expresso claims his decision, finally confirmed on Tuesday, to cancel the sale and open a new auction “quickly” – possibly even by the end of this year – follows “various offers of interest in Novo Banco” from new sources.

“Expresso knows that various entities that did not take part in the closed bid have told Bank of Portugal that they are now interested in taking part”, writes the paper – stressing this was “crucial” in the decision to “bury the sale process, for the time being” and suggesting that this way the Bank of Portugal “stands to make the most” from an eventual sale.

Nonetheless, the long-expected collapse of the auction of the so-called “good bank” that rose from the toxic ashes of BES has been described by international observers as a “damaging blow” to the government as it approaches legislative elections.

The Financial Times writes that “people familiar with the sale process” claim the nine months of talks involving 15 initial contenders were “badly managed”.

One source added that the bids accepted from China’s Anbang Insurance and Fosun International and Apollo Global Management of the US were “very weak”.

“The Bank of Portugal rushed into this without a need,” said the source. “The Fosun bid for instance had so many conditions it was essentially fake.”

What happens next is uncertain. The €4.9 billion injected into Novo Banco by the Resolution Fund (made up of banks and banking institutions) could now be added to Portugal’s 2014 budget deficit, which of course is why the FT calls the debacle “a damaging blow to the centre-right government”.

Spain’s Caixabank and Santander are tipped as potential bidders in the second auction, with TV commentator and former PSD leader Luís Marques Mendes confirming this on air on Tuesday, saying “at least two big Spanish banks” are interested in participating in the new sales process.

He also said “a European group” was considering merging Novo Banco with Portugal’s Banco BPI.

The FT concludes that “Lisbon will have to apply for an extension to the two-year deadline for selling Novo Banco if the sale process drags on beyond August 2016” – but Expresso suggests this is unlikely.

“The new process will be much quicker,” it writes, “as most of the work will have been done.” Uncertainties over the results of the European Central Bank’s stress tests on Novo Banco should be laid to rest in October and “the results of Serep”, a new ECB safeguard will be completed by November.

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