Banking | Novo Banco on the hunt for cornerstone investors

Portugal’s Novo Banco is planning to meet investors in the US and UK as early as next month to discuss a potential share sale, joining a growing list of southern European banks seeking to raise equity.
The bank, which was carved out of the ruins of Banco Espírito Santo after its government bailout in 2014, needs more capital to cover expected losses from selling unwanted assets that amount to a fifth of its balance sheet.
The 10bn euros [USD11.2 billion] of assets it has shifted into an internal “side bank” and hopes to sell include an interest in the M6 toll road in the UK, a luxury yacht, a stake in an Angolan bank and a private jet that a borrower dismantled in an attempt to stop it being repossessed.
Novo Banco, which declined to comment, hopes that by selling some of its most problematic assets it will achieve a higher valuation from investors and potential acquirers.
The bank recently sold its exposure to the Pocahontas Parkway toll road in Virginia on the US east coast and a loan the UK’s Wembley Stadium had taken out.
JPMorgan Chase is advising Novo Banco, while Deutsche Bank is advising Portugal’s central bank. Both advisers have been setting up meetings with institutions that could be interested in becoming cornerstone investors in the bank.
However, Novo Banco could meet a frosty reception from investors after some of its bonds were moved late last year to the “bad bank” left behind by Banco Espírito Santo. The move boosted its capital levels but sparked outrage from the bondholders hit by heavy losses.
Several other banks are already planning to raise fresh equity in southern Europe, including Banco Popolare, Banca Popolare di Vicenza and Veneto Banca.
Novo Banco is still owned by the Portuguese resolution fund, which has been given by European regulators until August 2017 to sell 100 per cent of the bank.
A share sale to cornerstone investors could open the door to a full public listing by Novo Banco, which made a net loss of almost €1bn in 2015. But the resolution fund is also seeking strategic bidders to acquire the bank outright.
Last year, the Portuguese central bank cancelled an auction of Novo Banco, describing the three binding offers it received from Chinese and US bidders as “unsatisfactory”.
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Portugal is hoping that Spain’s Caixabank will soon reach a deal to take full control of Banco BPI, the fourth-largest Portuguese bank, which could then act as a springboard to merge with Novo Banco.
A Lisbon-based banking analyst said Novo Banco would be valued in relation to Portugal’s main listed banks, Millennium BCP and Banco BPI, or about 0.2 to 0.3 times its €5.3bn book value. “That points to a price of around €1.5bn,” the analyst said. “I think anything below that would be unacceptable.”
Novo Banco’s strong franchise in Portugal is seen as its main selling point. It has a 12 per cent share of the loan market, including a fifth of corporate lending, and 13 per cent of deposits. It is Portugal’s third-largest bank by assets, loans and deposits.
The new internal side bank houses both Novo Banco’s problem loan portfolio and sound credits in segments that no longer fit with its commercial strategy. It includes its small operations in France, Macau, Venezuela and Cape Verde. But the bank is keeping its assets in Spain as part of its core franchise.
Novo Banco brought costs down by 13 per cent in 2015 and expects a further 20 per cent reduction in 2016. The loan portfolio has been reduced from €41.4bn to €35bn.
The bank started with total assets of €73bn. They are now down to €57bn. It recently reduced staff numbers by more than 600 through mutual agreement and hopes to soon bring this total to 1,000, taking its total employee base below 6,000. Martin Arnold, London & Peter Wise, Lisbon, Financial Times, MDT/FT exclusive