Novobanco. Sales solution causes surprise

The outcome of the sale of Novobanco was open almost until the end. Nascer do SOL knows that almost up until the eve of the announcement of the sale, the financial administration was on a roadshow with international investors and, alongside the direct sale, which ended up happening to the French group BPCE for 6.4 billion euros, the possibility of going ahead with the initial public offering (IPO, in the English acronym, or an entry on the stock exchange) was still on the table.

Our newspaper knows that CEO Mark Bourke negotiated the sale of shares at a discount to employees and that the idea was to sign the contract in the following days, as soon as he returned from the bank's institutional presentation. «Mark Bourke did his job. Novobanco was being prepared for sale, he valued the financial institution, gave it visibility, drew attention to its strengths, raised a value never before thought possible and exceeded the best scenarios, showing that it was an attractive bride», says a source familiar with the process. And he recalls the amounts that had been advanced at the end of the year by Novobanco itself and that pointed to a sale of between three and four billion euros and 2027 as the deadline. At that time and taking these values ​​into account, the State would have received one billion, less than the two billion euros that it had announced in the meantime – 1.6 billion that it received from the operation, plus dividends.

It is true that at that time, the financial institution was still in negotiations with the Resolution Fund, which holds 25% of the bank, for the early termination of the contingent capital mechanism and to open the door not only to the payment of dividends but also to the sale of the bank. «Not only was it possible to move forward with the sale process two years early, but it was also sold for more than double. There were technical and economic conditions to bring this operation forward and that was genius», recalling the recent statements by BCP CEO Miguel Maya, who doubted the value of novobanco when the Financial Times pointed out values ​​between five and seven billion euros about two weeks ago, «implying that, in such cases, BCP would be worth much more and that the seller was clearly inflating».

Vulture fund or competence? When Novo Banco was sold to the US investment fund Lone Star in 2017 – which took 75% in exchange for a capital injection of one billion euros: 750 million made available at the closing of the transaction and 250 million euros later – many considered that we were dealing with a vulture fund, whose idea was to recover, capitalise and sell. Eight years later, it has a capital gain of 4.8 billion, but if we add the dividends received in recent months, it reaches 5.8 billion euros. A source close to the process dismisses the idea of ​​a 'vulture fund', recalling that, at that time, no one wanted to keep the bank and gives as an example what happened with Lehman Brothers during the financial crisis in 2008, and with the share price of Citibank «which today is six times higher than it was after the subprime crisis because it had financial availability, took a risk and got its reward». And as for the Portuguese bank, he doesn't hesitate: "11 years ago, 17 years ago, the specifications were drawn up and there were zero offers. Three years later, it was sold to Lone Star, which must have imposed a set of conditions, namely the screening of a contingent capital mechanism. In other words, it bought, as they used to say, with belts and suspenders, but it was also the only one that took the risk, while the other potential interested parties didn't want to make this effort," he reveals to our newspaper.

The result is clear to see: «Although smaller, it is undeniable that this team has put Novobanco back on the path of what had been a legacy of Espírito Santo, a bank very focused on commercial activity, with very high commercial results and leaner in terms of expenses. Today it is head to head with Santander Totta, which is historically the most efficient bank in the Santander group in Europe, which is truly remarkable, and, compared to BPI, the latter has a mediocre performance when compared to Santander or Novobanco».

But to do so, he recalls that it was necessary to cut operations inherited from Espírito Santo, which were considered “machines for absorbing deposits and savings from immigrants”, and cut private banking, which “were scattered around a bit” to create, in his opinion, “a smaller operation, but which essentially covers 95% of the Portuguese population and SMEs, maintains an interesting flow of credit and captures the attention of the deposit market”.

Regarding those affected by BES, who continue to be excluded from these operations, the same source points out that this is a small percentage, namely a group of immigrants from Venezuela who bought bonds not issued by Espírito Santo Irmão or Rioforte, which contained some type of assets, but from vehicle companies in Panama, the Cayman Islands and the Bahamas. “As for the rest, António Costa’s government managed to find a solution, in which people recovered 75% of their money up to 500 thousand euros and 50% above that”, he points out.

Who is the buyer ? As Nascer do SOL has learned, the announcement of the sale to the French bank BPCE took the market by surprise. On that day, novobanco said that the financial institution explained that the decision of the majority shareholder to proceed with a direct sale represented «a strategic opportunity, positioning novobanco to join one of the largest and most solid European financial groups», stating that, «namely alongside the banking networks Banque Populaire and Caisse d'Epargne, BPCE will reinforce its role as an important development partner for the Portuguese economy».

The same source told our newspaper that this group is the result of the merger of two banks, at a time when the financial system was consolidating, one more linked to credit and the other to savings with the aim of strengthening capital ratios “in order to survive”, but with a philosophy similar to Montepio.

And, according to the criteria, it is the second or third bank operating in the French market, being “head to head with Crédit Agricole and BNP Paribas” and with the advantage of not having to lay off workers or close branches. A scenario that would be applied if Novobanco were bought by a financial institution operating in the national market because it would have to eliminate overlaps. “When BCP, in the Jardim Gonçalves phase, acquired Sotto Mayor and Banco Português do Atlântico and when Santander acquired Totta, Popular and Banif, we saw a logic of cost reduction. In this case, we are witnessing a project that is not based on mere cost reduction, that is, we will probably save several thousand qualified jobs and we will maintain the flow of financing to the economy in a market that has a high level of concentration. They are coming to do what they have always done, which is to grow a locally based bank”, he concludes.