Portugal's Novo Banco (former BES): The sell is done. Lone Star is the new owner

[Mike88]

One of the biggest discussions, politically and economically, right now, in Portugal is the sale of the Novo Banco, the bank that replaced the former Banco Espitito Santo (BES). After the group the bank was part of collapsed in August 2014, dragging the bank with it, the bank was divided in two: one good and another bad. The bad part of the bank retained the toxic funds and huge debts the former BES had. The good part retained all the positive assets of BES. The Novo Banco was also recapitalized from a fund, held by the state and all major banks in Portugal, in which the government injected around 4 billion euros and the banking system around 500 million euros.

Since then the Bank of Portugal and the government are trying to sell the bank but it's not going very well. Many companies and funds made proposals for the bank but all of them proposed paying less than half of what the government injected in the bank. In the first days of January, the Bank of Portugal delivered to the government a report of who should buy the bank. The winner, until the moment, is the American fund Lone Star who is offering 750 million euros and a government guaranty, although the last one they have already said they are willing to negotiate. There's also another group who is interested in the bank head by Apollo Global Management.

Because the proposed payment is so low, there's been a big debate of how to move forward. The PS is split between the government and the parliamentary caucus in which the government is doing everything to sell it and the caucus wants to nationalized. The Communists and the Left Bloc want, of course, nationalization. The PSD and CDS want to sell it at the best price possible.

Nationalize it will create a big problem for the state and the government because all of the debts and holes the bank has will be the government problem and taxpayers are going to have for pay it. Plus, the failed nationalization BPN is still being paid by taxpayers and the Caixa Geral de Depositos recapitalization drama is still very fresh. Selling it, even by a very good price, will also have a bad impact on the state because the money the government didn't get will be added to the deficit making it to go skyrock.

So, i decided to ask the forum, what do you do think is the best solution? (If there is one)

Discuss

[Intell]

Nationalise, ideologically and practically.

[Mike88]

Update:

Today, parliament voted against the nationalization proposed by BE and the PCP. With the votes of PS, PSD and CDS, the plan to maintain the Novo Banco failed to pass in parliament and although the PS voted against, they said that the "best way to guarantee the viability of nationalization, if this is an option, is let the process of selling be finalized"

http://expresso.sapo.pt/politica/2017-02-03-Novo-Banco-PS-PSD-e-CDS-chumbam-nacionalizacao-proposta-por-BE-e-PCP

http://observador.pt/2017/02/03/novo-banco-ps-mantem-um-pe-na-venda-mas-o-outro-na-nacionalizacao/

[DavidB.]

I'm not necessarily opposed to the idea of governments nationalizing a bank or even starting one, which could be a solution to the problems we're seeing all over the world, but if this particular bank has a lot of debts it might be better to sell it off rather than having taxpayers pay for the mistakes bankers made. I think the PS made the right decision here.

[Mike88]

Well, the sell is over. The government and Lone Star funds agreed on a deal to sell the bank and the PM will announce it today, with a very nervous PS behind him.

The deal is not quite what the government had been promising. When the bank went bust in 2014, the government injected 4.9 billion euros in the bank and who ever bought the bank should pay that amount or an amount in which the losses for the state would be manageable. And adding to this, the current PS government made clear that the state would not give a single guarantee to the buyer of the bank and this was said over and over again in the last few months. But, Mr. Costa made a big U-turn and the government will give, indirectly, a guarantee of 4 billion euros to Lone Star funds, the new owner of Novo Banco.

The deal is basically this:

1. The government will sell 75% of the bank to Lone Star funds by "zero" euros;
2. But at the same time, the government or the resolution fund (fund where banks of the system and the government are part of) will still have 25% of the bank although with no power what so to make any decisions in the bank;
3. The resolution fund will give a guarantee to Lone Star funds to cover any risks;
4. The government agreed to inject more money in the bank when the ratios of the bank are not achieved;
5. And finally, the 4.9 billions euros the governmet injected in 2014, are pretty much lost;

Everybody knew that the government would lose money, but as a taxpayer this deal is very bad and even worse than expected.