Novo Banco sale chaos “could push deficit to 7%”

Portugal’s coalition government is “holding its breath” as the Bank of Portugal fails spectacularly to offload “good bank” Novo Banco to the highest bidder. The problem, explains Diário de Notícias today, is that without a sale before the looming October elections, Portugal’s deficit – set by Brussels at 4% for this year – could spiral to as much as 7%.

With both prime minister Pedro Passos Coelho and finance minister Maria Luís Albuquerque insisting publicly that the Bank of Portugal knows best, the truth behind the scenes is that the pressure on governor Carlos Costa has never been so intense.

If Costa cannot reach a deal within the next two weeks, the risk is that Novo Banco could be the “first large stone in the government’s shoe” as it sets out on the campaign trail in an election where the chances of scraping a majority are described as slim.

DN adds that coalition sources are even suggesting it might be better to pull the sale altogether, as the financial implications of a bad deal could outweigh the political disadvantages.

The “fiasco” this far has seen the bank regulator locked in negotiations with its preferred buyer Chinese insurance group Anbang for two weeks before declaring on Tuesday that things were back at square one.

Initial press reports that American group Apollo Global Management was next in line had changed by the evening when television stations reported that the Bank of Portugal was pinning its hopes on Chinese conglomerate Fosun.

By this morning, this hovered slightly. Expresso claimed a deal with Fosun is “the most likely”, while DN stressed the field is still wide-open, with even Anbang standing a chance of being recalled.

The only thing that is certain is that the bottom-line price will fall far short of the €4.9 billion ploughed into Novo Banco in the wake of the collapse of BES. And that has already seen Opposition leader António Costa throw his pennyworth into the ring, criticising the government and the Bank of Portugal for “the very serious error” of “creating the illusion” that their “resolution” of the BES crisis would not impact on the man-in-the-street.

As our paper edition goes to press, talk of a “Plan B” is in the air. This would involve the Bank pulling the sale until 2019, to give the Resolution Fund time to restructure Novo Banco and inject new capital, writes Económico website.

natasha.donn@algarveresident.com