Novo Banco deal “the least bad”, say Socialists

With the prime minister revealing the ‘deal’ that sees Novo Banco finally under new ownership, his PS Socialist party have dubbed it the “least bad option” for a €4.9 million hot potato.

Nevertheless, the government’s left-wing ‘partners’ who put the Socialists into power, do not agree.

Bloco de Esquerda through Mariana Mortágua claims the deal simply “pushes the problem forwards by a few years” and that ultimately taxpayers will be left holding a very expensive can.

The full details of the sale will be analysed by tomorrow (Saturday) morning, but focus now is on whether António Costa’s assurances that there will be no direct or indirect impacts on public accounts, or the country’s taxpayers, can truly be taken at face value.

Initial reports would suggest that they can’t.

Observador for example puts it starkly: American equity fund Lone Star “will control 75% of Novo Banco after injecting into it €1 billion euros. The State will cover credit risks with a guarantee of €4 billion. The government always guaranteed that it would not concede any guarantees”.

And the biggest problem with all this, explains the news site, is that the ‘guarantee’ (which the State always said it would not concede) will come from the Resolution Fund which “does not have any money”.

In other words, “there could be the need to use public funds to lend the Resolution Fund money so that it could support losses”.

As the Resolution Fund is run by the Bank of Portugal and made up with money from the nation’s (beleaguered) banks, Observador traces a scenario in which “the banks will have to repay the loan, but at a controlled rhythm (€200 million per year) and with deadlines that could be prolonged for 30 years”.

Clear as mud? This story will slosh through the weekend, but it is unlikely to get any prettier.

Reports stress that the deal still needs to be given necessary authorisation from the European Central Bank and Brussels, and possibly even more importantly there needs to be a €500 million voluntary bond swap.

For anyone who does not understand what this means, Público describes is as a “kind of sword above the head of current Novo Banco investors: if the operation fails, the bank will be without a buyer, and the deal at risk of failure”.

The bond swap “could be a revision of maturities, interest payments or even a haircut – partial payment of value of the debt”.

Live-streaming the prime minister’s presentation of the deal this evening, RTP added that not only are the government’s left-wing supporters against it, 400 “small investors” who lost a combined fortune with the collapse of BES are calling on Europe’s competitions authority to block the sale.

According to a communiqué by MRA Advogados (Miguel Reis & Associates), the Consortium for the Defence of BES Investors (CDIBES) maintains that “the government cannot sell what is not theirs nor the State’s” and that “the objective of resolution has failed in every way”.

Calling the situation “scandalous”, CDIBES says it could take the issue to the Tribunal of Justice, says Observador.

Mariana Mortágua has meantime told journalists that the government should be referring the deal to parliament for much more detailed discussion.

On Saturday morning, ‘people’s daily’ Correio da Manhã explained the sale in ‘layman’s terms’ in a story that begins with the detail that Lone Star will be paid from paying any taxes in Portugal for 10 years – even though profits could start coming through by 2019.

As to the nuts and bolts of the sale, CM says: “It is as if a citizen invested €490,000 in a house, and less than two years later gave three bedrooms to an investor who paid the owner nothing, but simply promised to inject €100,000 in two phases, the first being of €75,000. Meantime, the original owner retains the ‘risks of the deal’ if anything goes wrong.

“Could it be worse?” Deputy director Armando Esteves Pereira queries. “It could. But this is a bad deal, and for the Lone Star fund it is an opportunity”.

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