Novobanco or Novo Banco, SA is a financial institution that stands out as one of the country's main commercial banks, based in Portugal. It was established on 4 August 2014, as a result of a restructuring and recapitalisation process by the Bank of Portugal to save the good assets of the previously bankrupt Banco Espírito Santo (BES). The rescue of BES was precipitated by historic losses of 3,577 million euros. BES's toxic assets, on the other hand, were transferred to a "bad bank".[2]
From 2017 to 2022, novobanco implemented a restructuring plan that focused on key areas such as improving asset quality, cost reduction, operational efficiency and strategic realignment.The bank took steps to reduce its non-performing loan portfolio from 12.3% of net NPL ratio in 2017 to 1.0% in 2022, including implementing strict risk management practices, strengthening internal controls and creating specialised recovery units.
In addition, novobanco has streamlined its operations, including divesting its international activity to focus entirely on Portugal, and optimised its cost structure, with Cost to Commercial Banking Income ("C/I") decreasing from 75.4% in 2017 to 44% in 2022, on a recurring basis.[5]
As of 2022, novobanco begins a new stage in its history, with a renewed brand,[6] a solid balance sheet and robust capital ratios. At this stage the bank has invested heavily in renewing its commercial network.[7]
Overview
As of October 2017, the American fund Lone Star Funds holds 75 per cent of the share capital of novobanco, with the Portuguese Resolution Fund holding the remaining 25 per cent.
As part of this sale, the European Commission, through the Directorate-General for Competition (DGComp), imposed a series of commitments and measures aimed at ensuring that the sale took place in accordance with competition rules and that the Portuguese state did not provide preferential treatment to the institution, namely the sale of non-core assets and the limitation of toxic assets on the balance sheet.
From this date onwards, novobanco entered a phase of restructuring both in terms of its operations and cleaning up its balance sheet and concentrating on its core business of commercial banking dedicated to private and corporate clients in the domestic market. The bank's operations were restructured and the balance sheet was cleaned up.
From 2017 to 2022, novobanco implemented an ambitious restructuring plan that focused on key areas such as asset quality improvement, cost reduction, operational efficiency and strategic realignment.[8]
The bank took steps to reduce its non-performing loan portfolio from 12.3% of the net NPL ratio in 2017 to 1.0% in 2022, including implementing strict risk management practices, strengthening internal controls and creating specialised recovery units.
In addition, the new bank streamlined its operations, including divesting its international activity to focus entirely on Portugal, and optimised its cost structure, with Cost to Commercial Banking Income ("C/I") decreasing from 75.4% in 2017 to 44% in 2022, on a recurring basis.
Activity and services
Currently, novobanco is the 4th largest bank operating in the national market,[9] with 1.5 million customers, assets of 44 billion euros and a 9.8% market share in June 2023. It operates with a business model centred on domestic commercial banking for companies and individuals.[10]
In June 2023, novobanco's commercial network had 292 branches and 20 corporate centres covering the entire national territory.
novobanco operates a wide range of banking services, including deposit services, loans, asset management, insurance and investments, offering personalised financial solutions.
Its business model is centered on domestic commercial banking and corporate and individual banking, offering the full spectrum of financial products to individuals, companies and institutional clients.
In June 2022 and again in April 2023, Moodys upgraded Novobanco's senior preferred notes by 5 notches to Ba3 with an unchanged positive outlook.
The upgrade reflects "the significant improvement in novobanco's credit profile as a result of a risk reduction strategy pursued over several years, in line with the restructuring plan agreed with the European Commission, which has been successfully finalised". Moody's adds that "the upgrade of novobanco's baseline credit assessment (BCA) to ba3 from b2 reflects the significant improvement in the Bank's solvency metrics, in particular the increase in asset quality, strong profitability and greater capacity to absorb losses following the profound restructuring of operations". In its analysis, Moodys also considered the significant progress in profitability in 2022, with the rating agency expecting "a continuation of the positive trend with the repricing of the loan portfolio and lower repercussions on the cost of funding."
The long-term deposit ratings were also revised from Ba3 to Ba1.
The Banker Magazine awards 2023
In 2023, Novobanco was awarded "Bank of the Year in Portugal" by The Banker, a renowned publication within the Financial Times Group. This is a recognition of novobanco's dedication to its customers, consistently anticipating their needs and providing innovative, efficient, and transparent banking products and services, based on high ethical standards and integrity. The rigorous evaluation process conducted by The Banker (Financial Times) emphasized several novobanco’s exceptional achievements in various key areas. Novobanco's robust commercial and financial performance, marked by steady and consistent growth of profitability, prudent financial management with controlled cost of risk, and strong capital generation. Innovation is at the core of novobanco's commitment to enhancing customers' overall banking experience. The bank adopts an approach that seamlessly integrates branches, online banking platforms and mobile applications into a leading distribution model. This integration allows customers to effortlessly transition between various channels, providing more flexibility and convenience. Novobanco's impactful corporate social responsibility initiatives, addressing environmental sustainability, community development, and financial inclusion, have also played a pivotal role in the bank's recognition.[12]
History
The rescue of Banco Espirito Santo came after weeks of increasingly bad news about the financial state of the lender, particularly its exposure to a cascade of companies headed by its founding Espirito Santo family headed by Ricardo Salgado. BES was to be split into a "good bank", renamed Novo Banco, and a "bad bank", which will house BES's exposures to the troubled Espirito Santo business empire as well as its Angolan subsidiary BESA. Novo Banco was recapitalised to the tune of 4.9 billion euros by a special bank Resolution Fund. The Portuguese state lends the fund 4.4 billion euros. The bank had a board for the 2014-2017 mandate presided by Vítor Bento.[13]
A month and a half after he started up his duties, Vítor Bento abandoned the leadership of Novo Banco and was replaced in September 2014 by Eduardo Stock da Cunha.[14]
The Resolution Fund is the bank's only shareholder until a sale transaction takes place. This fund is a structure created in 2012 with contributions from Portuguese banks and from the financial sector,[15][16] and its operations are audited by the Portuguese regulator Banco de Portugal.[17]
Novo Banco incorporates every staff, branch, deposits, credit customers and holders of senior bonds of Banco Espírito Santo.[17]
In August 2014 Novo Banco launched its first communication campaign, to mark the beginning of the change in the image of the bank.[18] From the campaign, whose symbol was a butterfly, the bank launched its new identity on September 22, which incorporated the animal's wings in the shape of a mathematical power, as a way to symbolize the commitment to “have once more the leading role it once had.”[19] The change in the brand was made progressively, starting by the facades in the bank's branches.[20]
On 30 June 2015, the resolution fund had received three binding bid offers on Novo Banco, from the Spanish banking group Banco Santander SA, the Chinese insurance group Fosun International Limited, the privately owned Chinese insurer Anbang Insurance, and the American private-equity firm Apollo Global Management.[21] One of the bidders opted to improve their offer on 7 August 2015. The selection and sale to the final winner of the bidding process is expected to take place during Q3-2015.[22] On 20 August, Banco de Portugal released a statement that the final phase of the sale process, was expected to conclude by 31 August.[23] In September however the sale was cancelled owing to the offers being deemed unsatisfactory.[24]
In March, 2016, it was announced that Portuguese state-rescued lender Novo Banco was planning to cut 1,000 jobs to help to reduce operating costs by 150 million euros ($163 million) as part of its restructuring plan agreed with the European Union. The proposed job cuts equated to 14 percent of the bank's workforce at the time.[25]
In October 2016, the resolution fund had received four offers on Novo Banco from China's Minsheng Financial Holding, Apollo and Centerbridge and Lone Star.[26] In January 2017, Aethel Partners headed by Ricardo Santos Silva made an offer to buy Novo Banco.[27]
In March 2017, the Portuguese Central Bank announced that Lone Star Funds will acquire 75% of third largest Portuguese bank, Novo Banco, in return for a capital injection of €1bn. The other 25% will be retained by the Portuguese bank's resolution fund. In October 2017 the deal was closed and Lone Star Funds started controlling 75% of Novo Banco.
In August 2023, Novo Banco was ordered to return $1.5 billion worth of frozen assets to the Venezuelan government.[28]
Retransfer
On 29 December 2015, Banco de Portugal unlawfully retransferred €2.2bn of bonds from Novo Banco back to the ‘bad bank’ BES. Of fifty two outstanding series of notes of equal seniority, the Bank of Portugal retransferred only five. This decision broke pari passu and imposed significant losses on investors in only those bonds. These five series of bonds were all governed by Portuguese Law. Save for one small series of notes, the other forty six were all governed by English law.
Legal action
An ad-hoc bondholder group of over 20 financial institutions co-ordinated by Attestor Capital, BlackRock, CQS and PIMCO (the “Novo Note Group”), among other investors, is pursuing legal action against Banco de Portugal and is attempting to reach a resolution that would promote further investment and the Novo Note Group's history of investing in Portugal. The Novo Note Group has alleged that Banco de Portugal's retransfer decision broke pari passu (both between the holders of notes and between the notes and other senior creditors of equal ranking with the notes), the key legal principle of equal treatment of senior creditors, discriminated against international investors, and has damaged Portugal's credibility as an investment destination going forwards In total, five series of Novo Banco bonds were retransferred back to BES out of a total series of 52. The Novo Note Group has taken the position that this select series of notes were chosen for retransfer rather than others because they were governed by Portuguese Law rather than English Law, which allowed Banco de Portugal to avoid litigation outside of Portugal. Despite the challenges this presents, the Novo Note Group has filed an appeal in the Administrative Court of Lisbon to challenge Banco de Portugal's actions in the proper forum. In its appeal, the Novo Note Group has argued that Banco de Portugal's use of the retransfer powers was unlawful because it failed to exercise those powers for the original purpose they were designed for. Rather than use the retransfer powers to correct the perimeter of the ‘good bank’ and the ‘bad bank’, Banco de Portugal exercised the retransfer powers to fundamentally improve Novo Banco's financial condition. This is not what the retransfer powers were created for according to the Novo Note Group. Moreover, the Novo Note Group has argued that Banco de Portugal was not permitted to use the retransfer powers it exercised in December 2015 because it failed to specify the assets that were subject to potential retransfer in the original resolution measure, as was required by the Bank Recovery and Resolution Directive (BRRD). In doing so, the Novo Note Group has argued that Banco de Portugal failed to comply with both EU law and the fundamental principles of Portuguese law.
La Caixa, also known as the "La Caixa" Foundation, is a not-for-profit banking foundation based in Catalonia. Originally a savings bank (caja), it reorganized in the 2000s and 2010s: Its commercial assets are managed under its subsidiary CriteriaCaixa, which also has partial ownership of La Caixa's old banking business CaixaBank; those are used to fund La Caixa's Obra Social — social, cultural, scientific, and civic projects for the public good.
Banco Espírito Santo (BES) was a Portuguese bank based in Lisbon that on 4 August 2014 was split in two banks: Novo Banco, which kept its healthy operations, and a "bad bank" to keep its toxic assets.
The National Bank of Angola is the central bank of Angola. It is state-owned and the Government of Angola is the sole shareholder. The bank is based in Luanda, and was created in 1926, but traces its ancestry back to 1865. The National Bank of Angola is active in developing financial inclusion policy and is a member of the Alliance for Financial Inclusion.
The Espírito Santo Financial Group (ESFG) was a Portuguese holding company with headquarters in Luxembourg, founded in 1984. The group represents the interests of the Portuguese Espirito Santo Group, which has major investments in Portugal and Europe, Americas, Africa and Asia.
Lone Star Funds, legal name of main entity Lone Star Global Acquisitions, Ltd. is an American private equity firm that invests in distressed assets in the U.S., Canada and internationally. The founder of Lone Star established its first fund in 1995 and Lone Star has to date organized 21 private equity funds with total capital commitments since inception of over $86 billion. Lone Star's investors include corporate and public pension funds, sovereign wealth funds, university endowments, foundations, fund of funds and high-net-worth individuals. Lone Star Funds has affiliate offices in North America, Europe and Japan.
CaixaBank, S.A., formerly Criteria CaixaCorp, is a Spanish multinational financial services company. CaixaBank is based in Valencia, with operative offices in Madrid and Barcelona, Spain. It is Spain's third-largest lender by market value, after Banco Santander and BBVA. CaixaBank has 5,397 branches to serve its 15.8 million customers, and has the most extensive branch network in the Spanish market. It is listed in the Bolsa de Madrid and is part of the IBEX 35.
Haitong Securities is a securities firm in China, providing services in stocks and futures brokerage, as well as investment banking, corporate finance, M&A, asset management, mutual fund, and private equity.
A bad bank is a corporate structure which isolates illiquid and high risk assets held by a bank or a financial organisation, or perhaps a group of banks or financial organisations. A bank may accumulate a large portfolio of debts or other financial instruments which unexpectedly become at risk of partial or full default. A large volume of non-performing assets usually make it difficult for the bank to raise capital, for example through sales of bonds. In these circumstances, the bank may wish to segregate its good assets from its bad assets through the creation of a bad bank. The goal of the segregation is to allow investors to assess the bank's financial health with greater certainty. A bad bank might be established by one bank or financial institution as part of a strategy to deal with a difficult financial situation, or by a government or some other official institution as part of an official response to financial problems across a number of institutions in the financial sector.
Manuel António Gomes de Almeida de Pinho is a former Portuguese Minister of Economy and Innovation (2005–09) in the José Sócrates cabinet, who subsequently became an energy policy academic (2010–17) under circumstances that led to indictments in Portugal in 2017 and 2019, to house arrest since 2021, and to multiple charges of passive corruption, tax fraud, and money laundering in 2022. According to those charges, Pinho received, while in office, at least 4.5 million euros in secret monthly offshore payments from his prior and subsequent boss Ricardo Espírito Santo Salgado whose Espírito Santo Financial Group benefited from several of Pinho's decisions as minister.
Banco Best, also known as Best Bank, is a private financial institution founded in 2001 and registered with the Bank of Portugal and the Portuguese Securities Market Commission (CMVM).
The Banco de Portugal is the Portuguese member of the Eurosystem and has been the monetary authority for Portugal from 1846 to 1998, issuing the Portuguese escudo. Since 2014, it has also been Portugal's national competent authority within European Banking Supervision. The bank was founded by royal charter in 1846, during the reign of Queen Maria II of Portugal, by a merger of the Banco de Lisboa, the first bank founded in Portugal, and insurer Companhia Confiança Nacional.
Carlos da Silva Costa is a Portuguese economist who served as Governor of the Bank of Portugal from June 7, 2010 to July 20, 2020, when he was succeeded by Mário Centeno.
NCG Banco, S.A. was a financial institution founded in Galicia on September 14, 2011, as a result of Novacaixagalicia banking activity spin-off.
ABANCA Corporación Bancaria, S.A. is a Spanish bank based in Galicia. It was created in 2011 following the "bankisation" of Novacaixagalicia savings bank. It operates in the autonomous communities of Galicia, Asturias and the province of León, in other parts of Spain and in Portugal, as well as offices in the UK, Germany, France, Switzerland, Brazil, Venezuela, Panama, Mexico and the USA.
Álvaro de Oliveira Madaleno Sobrinho is a Portuguese Angolan banker and businessman that developed his career in Portugal. He rose to prominence as director of Portuguese bank Banco Espírito Santo that went bankrupt in 2014.
Ricardo Espírito Santo Silva Salgado is a Portuguese economist and convicted banker. Former president of Banco Espírito Santo, which was founded by his grandfather, he was, until July 2014, the banker active for the longest time in Portugal.
Vítor Augusto Brinquete Bento is a Portuguese banker. He was the CEO of the Portuguese bank Novo Banco since August 4, 2014 until September 13, 2014, when he announced his resignation. He was replaced by Eduardo Stock da Cunha.
Banco Económico, formerly Banco Espírito Santo Angola (BESA) renamed in 2015, after the bankruptcy of its mother house in Portugal, Banco Espírito Santo (BES), is an Angolan bank based in Luanda. Previously, BESA was affiliated with the now defunct Banco Espírito Santo, now Novo Banco, and is therefore a subsidiary of Espírito Santo Financial Group (ESFG).
Ricardo Espírito Santo (1900–1955) was a Portuguese banker, economist, patron of the arts, and international athlete. A good friend of the Portuguese dictator, António de Oliveira Salazar, he turned the Banco Espírito Santo (BES) into one of the most important financial institutions in Portugal.
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€743mn (2023) [1] 
€ 43.5 billion (2023)
