Portugal’s Novo Banco, which the state is trying to sell after rescuing it in 2014, faces significant litigation risks and may fail to recover all of its loans to Angola’s Banco Economico, auditors PricewaterhouseCoopers (PwC) said on Wednesday.
Novo Banco is the “good bank” carved out of Banco Espirito Santo (BES), which collapsed in 2014 under the weight of its founding family’s debts and exposure to bad loans in Angola.
The first attempt to sell it failed last year, but the Bank of Portugal has relaunched the process this year and said it will study various options, including a tender to one or more investors and a public offering of shares.
Novo Banco is restructuring and said in a presentation on Wednesday it was aiming to sell 1.8 billion euros in non-core assets, including real estate and equity stakes, this year, while closing 170 branches to cut costs. It expects provisions to normalise after hefty impairments in 2014-15.
Novo Banco has said it does not expect to bear any litigation charges, which would be handled by Portugal’s Bank Resolution Fund instead, but PwC, which audited its 2015 results had a different view.
“Considering that the creation of the bank resulted from a resolution measure for BES, which had relevant impact on third parties, the risk of litigation involving Novo Banco is significant,” the auditors wrote in a report on the results.
The litigation risks are related to assets, debts and managed assets defined by the resolution measure and transferred to Novo Banco, the report said.
A group of 14 asset managers this month started legal action against Portugal’s central bank over heavy losses on nearly 2 billion euros of bonds in Novo Banco that were moved back to BES’s “bad bank”, which is being wound down, from Novo Banco in late 2015.
Also, Goldman Sachs is in a legal battle over an $835 million loan made to BES before its collapse, which it argues should have stayed with the good bank.
And there are more than 2,000 retail investors trying to recover the money they put in commercial paper of the Espirito Santo Group via BES.
In Angola, Novo Banco has a 9.7 percent stake in Banco Economico, which resulted from a clean-up of BES’ Angolan unit BESA, and PwC said Novo Banco’s total exposure to that bank totalled 838 million euros, mostly via two loans.
Novo Banco registered an impairment of 83 million euros on that exposure, but PwC said Angola’s economic crisis triggered by a fall in oil prices, a lack of audited accounts of Banco Economico or a plan for cash flow generation left doubts about whether the full remaining exposure could be recovered.