Capital injections from the Portuguese state to save Novo Banco will cost € 2.9 billion between 2018 and 2021, if all goes well, says the Portuguese Public Finance Council. For the year 2020 the Portuguese government has planned to inject another 600 million euros into Novo Banco, via the Resolution Fund, following the losses reported by the bank. However, the financial situation of Novo Banco is worse than it seems, and Brussels knows it well. In the chapter dedicated to Portugal, in the new autumn forecasts, the European Commission estimates that, at a minimum, the Portuguese state will be asked to inject 653 million euros next year (0.3% of GDP) because of this year's losses as well as to improve its capital ratios. Mario Centeno, Portuguese Minister of the Economy, predicted 600 million in April. How much does Novo Banco cost? What is the financial situation of the "new bank"? Lisbob, the expatriate assistant in Portugal, tells you all about the new losses of the Novo Banco.
Portugal will have to inject 3 billion euros by 2021 to save Novo Banco, which never stops flowing
Losses presented late on a Friday afternoon
Late Friday in the afternoon and without notice, Novo Banco presented its accounts for the period from January to September 2019 and the numbers are terrible: the consolidated results of the group born from the ashes of the BES has deteriorated considerably, for achieve a cumulative loss of 572.3 million euros at the end of September, up 46% compared to the same period in 2018 (losses of 390.9 million a year ago).
In the accounts published yesterday, the group Novo Banco, led by António Ramalho, refuses to say how much money he will have to ask the Resolution Fund, feed by public money and therefore taxes. There are only three months left to have a complete inventory of the year 2019 but the figures should not improve.
In a statement, Novo Banco only indicates that its key ratios are "hedged to predetermined levels to the extent of the losses already suffered on the assets protected by the contingent capital financing", but that "the end-of-year compensation will depend on losses and costs, recoveries and capital requirements in effect at the time ". Clearly, brace yourself, winter is coming !
0.3% less GDP due to Novo Banco
According to the framework agreement signed on 2 October 2017 between the Portuguese State, represented by the Minister of Finance, Mário Centeno, and the Resolution Fund, shareholder of Novo Banco, the taxpayers have pledged to contribute to the recapitalization of the bank, capped at € 3.9 billion in total and € 850 million annually, when required by the ECB's capital rules.
In 2018, the capital injection into the Resolution Fund amounted to 792 million euros (due to losses from the previous year). This year, the Fund received an additional € 1.1 billion that it injected into Novo Banco (including € 850 million from the state) and, by 2020, Mario Centeno estimated in its forecasts that at most, the Portuguese state would need to lend 600 million euros in 2019. The figure is already exceeded, and no one knows where it will stop.
It seems like it will be a lot more than that. The European Commission said this week it was expecting a negative impact of around 0.3% of gross domestic product (GDP) on the budget balance for 2020 due to a new support check to Novo Banco.
It was starting well…
More expenses, but less deficit
Nevertheless, Brussels is confident in the ability of the Portuguese government to achieve, for the first time in the history of democracy, a balanced budget for 2020. To take account of this gap, the Portuguese Ministry of Finance will have to reduce other expenses and / or collect more income.
In its Friday edition, the Jornal Económico said state support for Novo Banco would amount to 700 million euros by 2019 but did not attribute the figure to any source.
Losses of 6.5 billion since 2014
In any case, the financial situation of the Portuguese banking group continues to deteriorate. Since the death of the BES and the birth of Novo Banco, the Portuguese state, and therefore the taxpayers, had to help the bank up to 6.55 billion euros, and no one sees the end of the tunnel, and the losses will not stop there. Mario Centeno therefore expects more aid: 600 million in 2020 and 400 million in 2021 are indeed provided for in the Portuguese budget.
The Portuguese Public Finance Council (PSC) has analyzed this problem and concluded that in the current reference scenario (and not the worst of all), public support "will result in an overall impact of the recapitalization of Novo Banco de 2.9 billion euros.
