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In the last round of questions from the deputies of the Budget and Finance Committee, António Ramalho stressed that it is not taxpayers’ money that is being injected into Novo Banco, they are loans that the Treasury makes to the Resolution Fund and other banks will have reimburse the Resolution Fund. “We count for the deficit of these years, we will count for the surplus in the next 20 years,” said the CEO of Novo Banco.
Each year the Resolution Fund has its own income that it will use to repay this State loan and “what the Fund receives from the 25% revaluation of Novo Banco at the time of sale also counts,” he explained.
The CEO of Novo Banco confessed that he hoped to be able to generate more results in recurring banking, but recalled that the ECB imposed on Novo Banco additional impairments of 1,500 million euros “that took away the ability to finance the good bank.”
Among the monitoring and supervision measures of the banking system is the In Situ Inspection Program (on-site inspection by the banking supervisor). This is precisely what happened with Novo Banco in 2019, as part of an on-site inspection, the regulator demanded an additional set of impairments from the bank. The explanation was given by António Ramalho at the press conference to present the annual results, which were negative by 1,058.8 million in 2019.
“The CEC [acordo de capitalização contingente] It was created before I arrived, ”recalled Ramalho, who admitted that at that time“ I thought it would be necessary to call the mechanism less capital to clean up the bank, but the backstop rules have changed, the goal of 5% delinquency of La EBA and the ECB remained very restrictive in relation to Novo Banco’s capital ratios ”, he explained.
The Contingent Capitalization Agreement is based on the fact that the payments made by the Resolution Fund occur if there are, cumulatively, losses in the hedged assets and the Tier 1 or Common Equity Tier 1 (CET1) ratios become lower than the defined levels. Thus, the amount of payments to be made by the Resolution Fund corresponds to the lower of the following amounts: accumulated net losses in the assets of the CCA and the amount necessary to restore Novo Banco’s capital index to the agreed level (Level 1 of 12.75%, as of December 31, 2018 and 2017).
António Ramalho explained that there are 2,513 million euros in assets in the bank covered by the contingent capital mechanism (3,700 million in gross terms).
On the 2,513 million euros that can affect the 900 million euros that Lone Star can still use. But the final value will not be known for now, at the end of the first half it has already been indicated that there will be at least 170 million.
The gross value of the portfolio of assets covered by the CCA amounts to 12,705 million euros, registering impairments and provisions of 4,867 million euros, that is, an implicit average rate of 38% that translates into a global net amount of 7,838 million of euros. Additionally, despite not being considered in the CEC’s reference value, the extra-equity assets associated with customer credit are also covered by the Contingent Capitalization Agreement, corresponding to credit limits, guarantees and other commitments assumed by Novo Banco That on June 30, 2016 amounted to 1,315 million euros. Thus, the total net exposure of the Initial Assets at that date amounts to 9,153 million euros.
Ramalho also answered the question of impairments that were reinforced after the sale of the bank to Lone Star. “An ‘urban myth’ was created that the bank only made impairments after the sale to Lone Star, when the numbers show that there was almost the same amount of impairment recorded before and after the sale – around 1,700, 1,800 million euros both in one period and another ”. The banker adds that several properties were sold with significant capital gains and capital gains – “what happens is that the characteristics of banking and insurance in Europe have been marked by a devaluation in recent years.”
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