[ad_1]
“The Resolution Fund indicated 47 debtors that, in their perspective, should be included in the sample”, reveals Deloitte in the audit report on Novo Banco’s management actions between 2000 and 2018. Of these debtors, 25 were already included in the sample defined by the auditor, so the selection of the Resolution Fund resulted in 22 additional debtors to be included in the sample.
These 22 debtors were responsible for accumulated losses of 30 million, between August 4, 2014 and December 31, 2018, thanks to the impairments that were recorded.
In the same period, the 50 debtors covered by the CCA generated losses of 1,495 million, also thanks mainly to the volume of impairments recorded.
The 44 debtors identified as “Important financial situation gave Novo Banco losses of 573 million euros.
For each of the selected debtors, the operations with the most relevant accumulated net loss between August 4, 2014 and December 31, 2018 were analyzed.
According to the document, the debtors identified by the Contingent Capitalization Mechanism were 50 and the number of transactions 103. The debtors identified as “Greater financial situation” were 44 and the transactions of these debtors 64. The Resolution Fund added 22 debtors and 28 transactions.
“In addition to the selected transactions, the transactions that originated them were also analyzed, which in most cases involved the analysis of a significant additional number of additional credit transactions,” says Deloitte.
The three lines of work are divided into credit operations; subsidiaries and associates; and other assets.
Work line 1 – credit operations includes 50 individual borrowers with the highest net exposure as of June 30, 2016, with respect to the assets covered by the Contingent Capitalization Agreement (CCA). But also 50 more individual debtors identified by Novo Banco as “Great financial position”, with reference to December 31, 2018, which generated the highest net losses from reversals and replacements between August 4, 2014 and December 31, 2018 But of the last 50, six were sampled from workflows 2 and 3.
There are still debtors in line of work 1 that were designated by the Resolution Fund.
As defined, the sample must ensure a minimum coverage percentage of 50% of the total net losses related to the loans granted, recorded between August 4, 2014 and December 31, 2018.
The total losses under analysis in workstream 1 (credit operations) were 3,834 million euros between 2014 (377 million); 2015 (748 million); 2016 (679 million); 2017 (1,305 million); and 2018 (504 million). In addition, there are 221 million costs with the impact of the transition to IFRS 9 accounting rules.
As we know, the Deloitte sample includes debtors who have incurred losses of 2.32 billion euros and these represent 61% of the total losses with identified credits.
The sample selected by Deloitte includes 98 debtors covered by the CCA. In the period between July 1, 2016 and December 31, 2018, the “CCA losses” associated with these debtors amounted to 1,238 million euros, which represents around 54% of the total losses attributed to CCA in that period.
“Items selected for analysis in workflow 1 include credit impairment, provisions for guarantees and commitments, and the results of the disposal of other assets – credit to customers,” Deloitte explains. The result of loan disposals (after impairment) amounted to 260 million euros in the period (7% of the total), mainly concentrated in 2018 (214 million euros, mainly the result of the Nata Project).
Impairments skyrocketed in the last quarter of 2017, after the sale to Lone Star
2017 was the year in which the most significant losses were recorded, representing 34% of the total for the period. “It should be noted that a significant part of the losses for that year were recorded in the last quarter”, that is, after the sale of 75% of Novo Banco to Lone Star. “The increase in impairment and provisions in 2017 was related fundamentally with a series of events that occurred during that year in some of the main economic groups to which the Bank was exposed ”, justified the bank led by António Ramalho.
These losses were mainly due to credit impairments. “A relevant part of the debtors for whom impairment reinforcements were recorded in 2017 and 2018 already presented non-compliance or other triggers in previous periods ”, says the auditor.
“The losses recorded mainly refer to the business segment, with a high concentration in a group of economic groups. By way of illustration, it seems that around 70% of the total losses in the analyzed sample period were recorded for 14 economic groups ”, Deloitte also says.
It is also reported, with regard to credit operations, that there has been a 40% reduction in the gross exposure of the debtors included in the sample, from a gross amount of 7,113 million euros as of December 31, 2014 to 4,214 million euros on December 31, 2018. This reduction is partially justified by a material effect of the uses for impairment (write-offs) and disposals of assets. Added to the record of relevant impairment amounts for these debtors.
“It should be noted that in 2014 and 2015 there were increases in equity exposures of around 430 million related to the liabilities assumed in derivative operations contracted before August 4, 2014 and the conversion of commercial paper into loans granted”, it also advances analyzing.
Divestment operations in subsidiaries and associates resulted in accumulated losses of 605 million
In line of work 2 – subsidiaries and associates, the selection of the sample of entities owned by Novo Banco to be analyzed was based on two cumulative criteria. On the one hand, a gross investment of more than 20 million euros. In other words, the gross amount invested accumulated by Novo Banco in the investee exceeds 20 million euros. On the other hand, investment or divestment between August 4, 2014 and August 31, 2018 and an investment or divestment operation between August 4, 2014 and December 31, 2018.
“In addition, and after meeting the two criteria mentioned, the net losses of the group of selected participating entities must represent at least 50% of the verified losses, between August 4, 2014 and December 31, 2018, related with investees, ”he tells Deloitte.
26 participating entities were selected to integrate the sample. BES Vida / GNB Vida joined the sample of participating entities. But also Tranquilidade, Herdade dos Pinheirinhos, owned by Greenwoods, Moza Banco, among others.
The total losses under analysis in workflow 2, between 2014 and 2018, were 605 million and the Deloitte sample included losses of 488 million.
Finally, workflow 3 – other assets covered the 25 properties that generated the highest net losses from reversals and replacements borne by Novo Banco between August 4, 2014 and December 31, 2018; and the 25 securities that generated the highest net reversal and replacement losses in Novo Banco’s consolidated accounts between August 4, 2014 and December 31, 2018.
In addition, the selection for the aggregate sale of properties and / or credit to clients was also planned, carried out between August 4, 2014 and December 31, 2018, with a global sale value of more than 50 million euros.
“We selected the 25 properties that generated the highest net losses in Novo Banco’s consolidated accounts between August 4, 2014 and December 31, 2018” and “The sample of the 25 securities that generated the highest net losses in Novo Banco’s consolidated accounts between August 4, 2014 and December 31, 2018 ”, explains Deloitte.
The total losses under analysis in workstream 3 (other assets), between 2014 and 2018, were 1,745 million.
In the sample there are only losses of 1,233 million divided between real estate, restructuring funds, mandatory convertible securities (VMOC), equity instruments and investment funds; and investments in credit institutions.
Relevant part of the methodology for selecting the sample in the different Workstreams “was directed to the operations or assets that registered the greatest losses between August 4, 2014 and December 31, 2018. Thus, the selected sample is not representative of all operations. or assets of Novo Banco ”, explains Deloitte.
Difficulty accessing information about BES time trades reported by Deloitte
Deloitte encountered some difficulties in the analysis. Among the main limitations is the lack of information on some credits granted before resolution. For example, the loan portfolios as of December 31, 2000 and 2001 were not available; the loan portfolios from December 31, 2002 to 2008 only include information on the individual accounts of Banco Espírito Santo (parent company); the loan portfolios from December 31, 2002 to 2007 do not include information on accrued interest; the loan portfolio as of December 31, 2002 does not include information on past due loans; the loan portfolios from December 31, 2002 to 2007 do not include information on off-balance sheet liabilities; the loan portfolios as of December 31, 2002 and 2003 do not include information on impairment and provisions; The loan portfolios from December 31, 2009 to 2013 do not include information on impairment and provisions for the London Branch, Cayman Branch and Espírito Santo, plc entities. (Ireland). Additionally, the bank has not prepared the accounting reconciliation of the off-balance sheet balances and the respective provision for guarantees and commitments presented in the loan portfolios obtained for the period between December 31, 2009 and 2018.
Deloitte also says that the details of the losses made available to the London branch only include the identification of the debtor (no breakdown by operation).
Deloitte also says that Novo Banco does not have automated systematized information on the history of credit operations originated in BES that gave rise to the selected assets.
“The identification of these operations was carried out manually, often by consulting the documentation available in relation to the selected assets, so that for some of the selected assets we could not identify all of the respective originating operations, that is to say, operations that originated on dates prior to August 4, 2014, ”says the auditor.
The question of the audit deadline is also mentioned in the report. “It should be noted that the detail of the heading“ Results of the sale of other assets – Real Estate ”, which represented losses for Novo Banco in 2016 of 20 million euros, was only obtained at the end of our work. This situation meant that a property sold in that year, which represented a total loss for Novo Banco of 4.7 million euros, had not been selected in the sample ”, says Deloitte who suggests that this property could be included in the scope of the Special Audit. which will have as a reference the year 2019.
[ad_2]
