The Bank of Portugal ordered the re-transfer of €2,000 million senior unsecured bonds to BES, the bad bank that resulted from the collapse of Banco Espírito Santo in 2014. These bonds were originally issued by BES and transferred to Novo Banco following the Bank of Portugal’s original resolution of BES.

The decision follows the suspension of trading of the bonds ordered by the Portuguese Securities Commission and comes as a surprise to the markets and specialists, who were not expecting the Bank of Portugal to revert its original decision.

According to Novo Banco’s press release this measure will allow Novo Banco to improve its common equity Tier 1 ratio to 13%. Senior bondholders stand to lose approximately €2,000 million. The Bank of Portugal’s decision only affects institutional investors. Other creditors, including retail investors holding the same categories of bonds issued by BES, will not be affected.

According to the Bank of Portugal, this decision is definitive and no other changes to BES and Novo Banco assets and liabilities will be made. The Bank of Portugal also announced that it had requested the European Central Bank to order the cancellation of BES banking license, which will be the first step in the liquidation of BES and that it will launch a new procedure for the sale of Novo Banco.

It is expected that this measure will meet fierce opposition from the senior bondholders whose only way forward will be to take the matter to courts. For now, the effects on Novo Banco appear to be positive but it remains to be seen if this decision will facilitate the sale of Novo Banco or scare potential investors away.

We will continue to update this news as more information is known.

 

See Novo Banco's press release

search