Huge questions hang over State Bank’s €5.1 billion recapitalisation plan

Now that the dust has settled on the government’s announcement that it is forging ahead with a €5.1 billion recapitalisation plan for beleaguered State Bank Caixa Geral de Depósitos, huge questions remain – not least being the bottom line of Portugal’s so-called ‘amended budget’, due to be implemented later this year.

As finance minister Mário Centeno has admitted, “the implications for the deficit are complex”.

Around 2,700 jobs cuts, 300 branch closures – these are all in the pipeline as the bank’s new administration takes control.

The deal involves an injection of €2.7 billion funded by the taxpayer; the conversion of €960 million of contingent convertible bonds into equity, the transfer of €500 million in government shares and the raising of €1 billion of subordinated debt from private investors.

Foreign press reports explain that “the Portuguese government has been negotiating with Brussels for months so that any injection is not considered state aid and does not count towards the budget deficit, which Lisbon has promised to cut to 2.5% of GDP in 2016 from last year’s 4.5%”.

But these initial stories did not touch on the viability of the deal, nor the attitude of foreign investors to coming on board.

As “one large institutional investor” has since admitted, the furore generated by the Novo Banco bond dump late last year has put people off any involvement with Portuguese banks in a big way. He told the FT last week, there was “no way” the €1 billion could be raised from private investors.

Ratings agency DBRS has intimated very much the same, preferring to “wait and see” what happens before considering whether the plan can actually work.

Needless to say, the government’s left-wing ‘allies’ are keeping a low profile – as yet more demands on the nation’s taxpayers are not really in line with their thinking. But the opposition has been damning, suggesting Centeno is leaving all the bad news to the new board that takes over the reins at the bank this week.

PSD leader Pedro Passos Coelho told reporters: “I have been a few years in government and I have a reasonable notion of the situation of CGD. I have to confess I haven’t understood anything that the Minister of Finance said, because he said nothing. He has left discussion of the bad news for whoever comes next.”

And in a rare moment of humour, Passos Coelho added that Centeno has played his part perfectly. “He doesn’t make the mistake of going on television with a furrowed brow. He is happy, confident, ‘everything will work out. Tomorrow we’ll see. A problem? We’ll work it out? And if it doesn’t work out? We’re optimists!”

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Caption: Finance minister Mário Centeno has admitted “the implications for the deficit are complex”