Ad Hoc Capital Injections
Portugal: Banco Espírito Santo Capital Injection, 2014
Announced: August 3, 2014
Purpose
“To safeguard the financial soundness of Banco Espírito Santo, S.A. and the interest of its depositors, as well as to maintain the stability of the Portuguese financial system.” (BOP 2014a)
Key Terms
- Announcement DateAugust 3, 2014
- Operational DateAugust 3, 2014
- Date of Final Capital InjectionDecember 2021
- End DateAs of November 2023, the government of Portugal held a 25% stake in Novo Banco
- Source(s) of FundingNovo Banco received two sets of capital injections: (1) EUR 4.9 billion provided by the Resolution Fund, with EUR 3.9 billion from the Portuguese state, and EUR 1.0 billion from private banks; (2) EUR 3.4 billion more than 2018–21 under the CCA from the State
- AdministratorBOP’s Resolution Fund
- Size2014: EUR 4.9 billion; 2017: EUR 3.9 billion (CCA)
- Capital CharacteristicsEquity capital of Novo Banco is underwritten by the Resolution Fund
- Bail-in Terms2014: Equity and subordinated debt; 2015: Senior debt of EUR 2.2 billion
- OutcomesNovo Banco received EUR 8.3 billion of capital injections over 2014–21, with the Portuguese state providing EUR 7.3 billion; Lone Star injected EUR 1.0 billion into Novo Banco to purchase 75%; GOP’s 25% stake in Novo Banco had a book value of EUR 1.1 billion as of 2023
- Notable FeaturesBOP retransfer of senior bonds led to uncertainty for the senior unsecured debt of European banks; in 2017, the Resolution Fund did not receive anything for selling 75% of Novo Banco to Lone Star; the Resolution Fund also had to commit to an additional EUR 3.9 billion of capital, adding pressure on the overall banking system
Banco Espírito Santo (BES) was the second-largest private bank in Portugal in 2014, with assets of EUR 80 billion (USD 81 billion). A capital increase of EUR 1.1 billion to the BES was concluded on market terms in June 2014. The Bank of Portugal (BOP) adopted a resolution measure for BES on August 3, 2014, to safeguard financial stability by protecting all depositors and ensuring continuation of operating activities of the bank. The Portuguese Resolution Fund provided equity capital of EUR 4.9 billion to a bridge bank, Novo Banco, with 100% public ownership and the expectation of sale to private investors in two years. The Resolution Fund was capitalized by a loan of EUR 3.9 billion from the Portuguese state and contributions of EUR 1.0 billion from the private banking sector. Novo Banco was initially expected to be sold to private investors no later than December 2016. In 2015, the BOP’s decision to bail-in EUR 2.2 billion of senior bonds led to uncertainty for the senior unsecured debt of European banks. In 2017, the BOP and the Resolution Fund sold a 75% stake in Novo Banco to Lone Star, a US-based private equity fund, in return for a commitment to inject EUR 1.0 billion of new capital into Novo Banco. Portugal also committed to a Contingent Capital Agreement (CCA) with Lone Star, for a maximum size of EUR 3.9 billion to provide additional capital injections to Novo Banco if the Tier 1 ratio dropped below 12%. Novo Banco received EUR 3.4 billion of capital injections by the Resolution Fund between 2018 and 2021, thereby receiving EUR 7.3 billion of total capital injections from the state since 2014. In February 2023, the European Commission (EC) declared that the resolution process was over and was successful in returning an important bank to viability. As of November 2023, the government of Portugal and the Resolution Fund continue to hold a joint 25% stake in Novo Banco with a book value of EUR 1.1 billion (GOP holds 12% and the Resolution Fund holds 13%).
This case study is about the ad hoc capital injections provided to Banco Espírito Santo (BES). The first capital injection to BES was provided in August 2014 along with a resolution plan; for details, see Gupta (2024).
Founded in 1869, Espírito Santo International (ES) was one of Portugal’s largest conglomerates that is privately-owned with various business holdings including real estate, hotels, financials, and hospitals. The ES group owned 49% of a publicly listed financial arm Espírito Santo Financial Group (ESFG), which owned 27% of BES in May 2014 (Kowsmann 2014a). Prior to the restructuring announcement, ESFG’s ownership of the bank had dropped to 20%, while the other 36% of major shareholders were various private banks, investors, and asset management companies (see Figure 1) (Benedetti-Valentini 2014; BES 2014a; EC 2014b). Crédit AgricoleFNCrédit Agricole helped the Espírito Santo family regain control of the bank and insurer from the Portuguese government in 1989 (Benedetti-Valentini 2014; EC 2014b). Crédit Agricole had remained a major shareholder of BES from the early 1990s; it reported a EUR 708 million (USD 950 million) loss in the second quarter of 2014, owing to losses at BES from distressed exposures to companies owned by the ES group(Reuters 2014b). In May 2014, Crédit Agricole and ESFG (holding company of the ES family) jointly held 47% in BES through a holding company called BESPAR (Reuters 2014a). In May 2014, they gave up their stakes in BESPAR and, after BES issued new shares in BES in June 2014, Crédit Agricole and ESFG were left with individual stakes of 15% and 25% in BES respectively (Reuters 2014a)., a large French private bank, was the second largest shareholder in BES (Benedetti-Valentini 2014).
In 2014, BES was the second largest private bank in Portugal, with assets of more than EUR 80 billion (USD 97.6 billion)FNPer Yahoo Finance, EUR 1 = USD 1.22 on December 31, 2014. and 10,000 employees across 25 countries (EC 2014a).
BES had a market share of 11.5% of total deposits from the residents of Portugal, and 31% of financing of the insurance and financial sector. A disruption in BES’s financing activities would have had a significant systemic effect in Portugal (World Bank Group 2016).
In May 2014, KPMG’s external audit report noted irregularities in the accounts of ES and stated that the group is in “serious financial condition” (Kowsmann 2014a). Between June and August 2014, BES’s shares had dropped by 89% due to financial concerns (BBC 2014b).
On July 30, 2014, BES unexpectedly announced EUR 3.5 billion (USD 4.8 billion) in losses largely due to improper loans made to other affiliates of the ES group, dropping its Common Equity Tier 1 (CET1) ratio to 5% and breaching minimum regulatory requirements (BOP 2014b; Minder 2014b). BES had suffered from EUR 1.5 billion in unexpected losses from operations conducted in the first half of 2014 and had not previously reported this to the external auditor (World Bank Group 2016). Ricardo Espírito Santo Salgado, who ran BES for more than two decades starting from 1991, stepped down in May 2014, was held in custody in July 2014 for money laundering and tax evasion charges, and ordered by a judge to post bail of EUR 3 million (BBC 2014a; Ewing and Bray 2014; Minder 2014a).
In September 2013, the Bank of Portugal (BOP) initiated a ring-fencing policy for BES with respect to other companies in the ES group, after its ETRICC2 (Horizontal Review of Credit Portfolio Impairment) process, involving an audit of nonfinancial companies. This BOP policy was reinforced as ES group companies started to default. As of December 2013, external auditors KPMG and PricewaterhouseCoopers (PwC) had confirmed the setup of a provision of EUR 700 million of capital to ESFG (Costa 2014b). On June 16, 2014, BES raised EUR 1.1 billion via a public offering from the issuance of 1.6 billion new common shares (BES 2015).
On August 3, 2014, the BOP announced that it was applying a resolution measure to BES and transferring its good assets, customers, and operations to Novo Banco (a bridge bank), while protecting depositors and senior, unsubordinated bondholders. The Resolution Fund also announced its purchase of EUR 4.9 billion in common shares in Novo Banco, representing a 100% ownership stake in the bank (see Figure 2) (BOP 2014b). The BOP also transferred EUR 3.5 billion of Government Guaranteed Bank Bonds (GGBB), which the BES had issued under the Portuguese Guarantee Scheme to Novo Banco to strengthen the liability side of its balance sheet (EC 2017b). The bad assets and liabilities associated with the ES group were to remain in the residual entity, which was the bad bank under liquidation, with all losses to be borne by the equity and subordinated debt holders of BES (see Figure 1) (BOP 2014a). The Resolution Fund was to receive a EUR 3.9 billion loan from the Portuguese state and would also be funded by EUR 1.07 billion of contributions from banks in Portugal (EUR 700 million from eight participating banks and EUR 365 million of past contributions) (Machado 2019). At the time, the authorities stated that they expected the proceeds from the sale of Novo Banco would be used to compensate the Resolution Fund (Kowsmann 2014b).
Figure 1: Major Shareholders of BES as of July 30, 2014
Source: Benedetti-Valentini 2014; BES 2014a; EC 2014b.
The next day, August 4, 2014, the European Commission (EC) approved the capital injection and creation of the bridge bank. The EC declared that the BOP’s actions were in line with State Aid rules, justified by the need to restore financial stability and avoid adverse systemic risks (EC 2014a). The BOP communicated the costs of a disorderly resolution of BES to the EC in the range of EUR 16 billion to 28 billion in losses, and up to EUR 18 billion from the Deposit Insurance Fund to cover insured deposits (Albuquerque and Branco 2016; EC 2017b).
In December 2014, Apollo Global, Banco BPI, and Banco Santander, were reported by the Wall Street Journal as interested parties to purchase Novo Banco with deposits of EUR 25 billion and a loan portfolio of EUR 32 billion (see Figure 2) (Kowsmann and Patrick 2014). In early September 2015, Novo Banco reported losses of EUR 252 million for the first half of the year due to costs associated with writing off loans received from BES. The BOP missed its own deadline to sell Novo Banco, with the New York Times reporting that the potentially interested bidders included Anbang Insurance Group, Apollo Global, and Fosun International (Minder 2015). On September 15, 2015, the board of directors of the BOP suspended the sale process of Novo Banco due to the unsatisfactory three binding offers received, and other significant uncertainties including potential capital increases from the European Central Banks’s (ECB) prospective stress tests of the bank (BOP 2015a).
The ECB Banking Supervision stress test highlighted a capital shortage of EUR 1.4 billion at Novo Banco in the adverse scenario (BOP 2015b). Novo Banco passed the stress test in the baseline scenario with a CET1 ratio of 8.24% but fell short in the adverse scenario with a CET1 ratio of 2.43% versus the 5.5% passing threshold (BOP 2015b). Novo Banco committed to focusing on core business activities and reducing exposure to unprofitable business areas. In December 2015, the EC approved the extension of the Portuguese state guarantee to the bonds of Novo Banco at a value of EUR 3.5 billion, which were originally placed at BES in 2011 and 2012 (BOP 2015c). Novo Banco continued to report losses due to provisioning related to loan impairments, and disclosed losses of EUR 1.0 billion in 2015, EUR 837 million in 2016, and EUR 290 million for the first half of 2017 (EC 2017b).
The bad bank BES reported a full year loss of EUR 9.2 billion for 2014, loss of EUR 2.6 billion for 2015, and reported assets at less than 3% of liabilities as of December 31, 2015. The BOP retransferred five issues of senior unsubordinated debt worth EUR 2.2 billion from Novo Banco to BES, which was accounted for in the reported financials for 2015 (BES 2016a). The retransfer effectively imposed a total loss on the holders of these bonds, and later in 2016 led to legal action against the BOP by 14 institutional asset managers, including BlackRock and PIMCO (Hale and Arnold 2016).
At the time of the retransfer, Novo Banco had EUR 5.4 billion of senior unsecured debt among its liabilities (Reis and Almeida 2015). This move led to uncertainty and volatility in the broader markets for senior unsecured debt issued by European banks, as investors became concerned that this debt was also bail-in-able under the post-crisis regulatory regime (see Figure 3) (Hale 2016). As per the EU regulatory framework, senior debt is bail-in-able, which created the legal basis for the retransfer of the select senior bonds. In July 2016, the ECB revoked the ability of BES to function as a banking entity, leading to effective insolvency and liquidation of the legacy bad bank (BES 2016b).
In October 2017, the Resolution Fund sold 75% of Novo Banco’s equity to Lone Star, an American private equity fund, through Nani Holdings (Novo Banco 2015). The Resolution Fund did not receive anything for the EUR 4.9 billion in capital it had invested so far; however, it retained a 25% stake in Novo Banco to allow for potential inflows from its sale in the future. Lone Star agreed to invest EUR 1 billion of new capital into Novo Banco (Wise 2017).
However, Portuguese authorities also signed a Contingent Capital Agreement (CCA) with Lone Star, under which the state could compensate Lone Star up to EUR 3.9 billion to cover any losses related to a portfolio of legacy nonperforming loans (NPLs), in the event its CET1 ratio fell below 12%. The total amount authorized under the CCA corresponded to 75–95% of the gross book value of assets covered by the agreements (EC 2017b).
António Costa, Portugal’s prime minister, stated that choosing to nationalize Novo Banco would have cost the taxpayer an additional EUR 4.0 billion to 4.7 billion upfront, and exposed the state to “limitless” liabilities down the road if the bank’s losses turned out to be even worse than expected. In contrast, the CCA exposed the state to costs on a contingent basis, which it booked over time, and capped its exposure at EUR 3.9 billion. Lone Star was restricted from paying dividends for a period of five years, to ensure that the income from asset sales would build Novo Banco’s capital (Wise 2017).
The Portuguese state also committed to providing a capital backstop, approved by the EC in 2017, in addition to the contingent capital agreement. The EC’s 2017 decision noted that the trigger for the state to provide aid under the capital backstop would be if the total capital of Novo Banco “falls below the SREP total capital requirement;” SREP is the Supervisory Review and Evaluation Process, in which European supervisors evaluate banks’ capital and risks and assign an individual capital requirement for each bank every year. Specifically, the EC would deem it appropriate for the state to provide aid under the capital backstop “to the extent necessary to ensure the solvency of Novo Banco in the Commission’s adverse scenario.” (EC 2017b, 25).
At the end of 2021, Novo Banco’s minority shareholders comprised 24.61% held by the Resolution Fund, 1.56% held by the Directorate General for the Treasury and Finance, and 73.83% held by Lone Star (Nani Holdings). As per the deal with Lone Star, any conversion of rights instruments by the Portuguese state would only lead to a dilution in the shareholding of the Resolution Fund, and not affect Lone Star’s 75% holding. As a result, by the end of 2022, the Resolution Fund’s holding in Novo Banco reduced to 19.31%, the Treasury’s holding increased to 5.69%, and Lone Star’s holding was back to 75%. The latest annual report noted that the Portuguese state could have an effective stake of 22.1% in Novo Banco, at the expense of further dilution for the Resolution Fund. The share increase for the Treasury can be attributed to the completion of rights conversions for net negative results and tax credits accumulated by Novo Banco between 2015 and 2020 (Novo Banco 2023b).
In February 2023, Portugal’s Finance Ministry announced that the European Commission had declared the end of the restructuring process and the end of its ongoing monitoring of the implementation of the resolution of Novo Banco. The GOP called the EC announcement “the end of a very important stage for the stabilization of the national financial system.” (GOP 2023). The BOP announced in a separate statement that the restructuring of Novo Banco in 2014 and the contingent capital agreement in 2017 were essential for the survival of the bank. The BOP argued that the completion of the restructuring process was “a further indicator that Novo Banco will not need to request any further payments from the Resolution Fund under the [CCA].”(BOP 2023, 1). The Finance Ministry and BOP also both noted that the end of EC involvement meant that the Portuguese state was no longer committed to provide the public capital backstop in an extreme scenario (BOP 2023). The Portuguese state and the Resolution Fund continue to hold a joint 25% stake in Novo Banco, including 12% held by the Treasury and 13% held by the Resolution Fund, as per an investor presentation from November 2023 (Novo Banco 2023c).
As of November 2023, Novo Banco had received EUR 3.4 billion under the CCA, and had an additional EUR 485 million available to fund losses if its CET1 ratio drops below 12%. The CCA is in place until December 2025, and can be extended under specific conditions by one additional year. Novo Banco remains subject to a dividend ban and has a servicing agreement with the Resolution Fund until the maturity of the CCA. Novo Banco reported that its net nonperforming asset (NPA) ratio had fallen from 12.2% in 2017 to 0.7% in the third quarter of 2023. Novo Banco’s CET1 ratio was 16.5%, strongly above the 12% CCA trigger (Novo Banco 2023c). Novo Banco’s CEO Mark Bourke declared that the bank would be operationally ready for an initial public offering (IPO) in the first half of 2024 (Reuters 2023). In December 2023, the DBRS rating agency upgraded the long-term debt of Novo Banco by two notches due to notable improvements in earnings and capital (Novo Banco 2023a).
Figure 2: Timeline of the Restructuring of Banco Espírito Santo
Source: Authors’ analysis
The International Monetary Fund (IMF) noted in 2015 that the financing arrangement between the Portuguese government and the Resolution Fund potentially added a considerable burden on a concentrated and unprofitable banking system. The IMF suggested a revised repayment schedule for the government’s loan, with a longer-term horizon to allow the banking system to absorb the costs of the resolution (IMF 2015).
In 2015, Fitch Ratings stated that if the sale price for Novo Banco was lower than the size of the loan to the Resolution Fund, the losses would have to be borne by the Portuguese banking system. Fitch noted further that Caixa Geral de Depósitos and Banco Comercial Português were the largest contributors to the Resolution Fund, but the potential costs to each Portuguese bank would depend on each bank’s capital and profitability levels (Fitch Ratings 2015).
Albuquerque and Branco, two attorneys in private practice, concluded in the International Banking Law and Regulation Journal that the creation of Novo Banco allowed for the continuation of the core activities of the bank, limiting disruption to depositors, and preventing contagion risk to the financial system. In 2015, the first sale process for Novo Banco was suspended due to concerns of a capital shortfall at the bridge bank. In 2017, Novo Banco failed the adverse stress scenario in the ECB’s stress test, highlighting a capital shortfall of EUR 1.4 billion. The decision to retransfer senior bond tranches of Novo Banco helped improve the CET1 ratio from 9.4% to 13%, but also made the senior debt of the bank bail-in-able. This retransfer decision was seen as important to maximize the value of Novo Banco’s balance sheet, but a “two-edged sword” due to the uncertainty created amongst investors (Albuquerque and Branco 2016). In 2016, Fitch Ratings stated that the BOP’s 2015 decision highlighted the risk of retransfer of bonds in bridge banks until the resolution is concluded.
Albuquerque and Branco stated that the loan provided to the Portuguese Resolution Fund, from the state and the banking system, may not be fully recovered. This implied that taxpayers were not fully protected against the cost of failure of BES. It was also highlighted that the initial two-year sale target did not account for the size and structure of Novo Banco, including considering further capital needs (Albuquerque and Branco 2016). Later in 2017, the Portuguese authorities sold 75% of Novo Banco to Lone Star in return for a EUR 1 billion capital injection into the bridge bank (Wise 2017). As per the EC, the shareholders and subordinated debt holders of BES absorbed nearly EUR 7 billion of losses as of 2017 (EC 2017a).
In the learnings from the BES resolution, Pedro Machado, the chief legal counsel of the BOP, noted that in certain cases the objectives of preserving financial stability and protecting taxpayer funds are in conflict (Machado 2019). Orrick, a legal advisory firm, stated that the BOP had limited tools towards the resolution of BES, since the EU Bank Recovery and Resolution Directive (BRRD) (Directive 214/59/EU) would not be adopted by Portugal until 2016 (European Parliament and Council of the European Union 2014). The BRRD would have provided the BOP with additional legal authorization to impose losses on subordinated creditors and minimize the use of taxpayer funds (Orrick 2014).
In 2022, a member of the European Parliament, João Pimenta Lopes, noted that after Novo Banco’s sale to Lone Star in 2017, the bank disposed legacy assets inherited from BES at a steep discount and needed to access the CCA (Lopes 2022). In a written response, the EC’s vice president Margrethe Vestager clarified that capital requirements for Novo Banco were determined by the authorities based on National Portuguese Law, and that the EC was monitoring compliance on commitments by the Portuguese government (Vestager 2022).
In the same year, the Portuguese Communist Party presented the case that eight years since the application of resolution to BES, and five years after the sale to Novo Banco, the costs to the country have been EUR 9 billion. The report by the Court of Auditors on Novo Banco from 2021 is cited to reflect the lack of effective control measures in the disposal of assets in the capital mechanism (PCP 2022).
Portugal’s State and Resolution Fund provided EUR 7.3 billion of capital injections between 2014 and 2021 and continues to hold a joint 25% stake in Novo Banco with a book value of EUR 1.1 billion (12% held by the GOP and 13% stake held by the Resolution Fund) (Novo Banco 2023c). Novo Banco is expected to complete an IPO in 2024, which could allow the Portuguese state an additional opportunity to monetize its holdings (Reuters 2023).
For more details on the resolution and restructuring of BES, see Gupta (2024).
Key Design Decisions
Purpose1
An extraordinary meeting of the board of directors of the BOP declared on August 3, 2014, that a resolution plan for BES was being formulated: “To safeguard the financial soundness of Banco Espírito Santo, S.A. and the interest of its depositors, as well as to maintain the stability of the Portuguese financial system” (BOP 2014a, 1).
As of June 30, 2014, BES had total deposits of EUR 37.3 billion and loans/advances of EUR 45.9 billion. In July 2014, BES was experiencing significant deposit withdrawals by retail customers and non-financial companies between EUR 1.0 and 1.9 billion. By the end of the month, BES had reported EUR 3.6 billion in capital losses for the first half of 2014 (EC 2014b). BES was forced to apply for an Emergency Liquidity Assistance (ELA) of EUR 3.5 billion on August 1, 2014. The Governing Council of the ECB rejected BES’s liquidity request on the same day, suspended the bank’s monetary policy counterparty status, and asked the bank to repay EUR 10 billion in credit by the close of August 4, 2014. The ECB’s decision to suspend the counterparty status of BES forced the bank to seek emergency liquidity assistance from the BOP (BOP 2014a).
In August 2014, the Resolution Fund provided EUR 4.9 billion to Novo Banco in exchange for common shares of the bank (EC 2014b). The Resolution Fund garnered the capital from a loan of EUR 3.9 billion from the Portuguese state, a loan of EUR 700 million from eight Portuguese banks, and EUR 365 million of prior contributions from the banking system between 2013 and 2014 (Machado 2019). The BOP’s press release stated that the Resolution Fund will be supported by the financial sector, and that the State would not bear any costs related to this resolution (BOP 2014b). The board of directors of the BOP noted that state funds would only be used for financing operations to the Resolution Fund, and not to capitalize it. The BOP board was focused on the best solution for taxpayers, before considering a compulsory capitalization or public recapitalization of the bank. A public recapitalization was declared unviable owing to the urgency of the default risk of BES and to protect taxpayer funds from the inherent risks of the banking business (BOP 2014a).
Apart from the urgent public interest in ensuring financial stability, the BOP wanted to ensure that the new bank would sever ties that led to the current adverse situations, have a stable balance sheet, and be ready for sale to private investors (BOP 2014a). The first capital injection took place on August 3, 2014, to capitalize Novo Banco, the good or bridge bank of BES formed by the BOP’s resolution plan (BOP 2014b).
In 2017, Novo Banco and the Resolution Fund committed to a CCA, which required the Resolution Fund to provide up to EUR 3.9 billion of additional capital injections funded by the Portuguese state (Resolution Fund 2014b). Between 2018 and 2021, the Resolution Fund provided a total of EUR 3.4 billion in capital injections to Novo Banco (see Figure 4).
Part of a Package1
Between 2014 and 2023, the BOP undertook several steps to ensure the viability of the bridge bank (Novo Banco) and the success of its restructuring plan. For details, see Gupta (2024).
In November 2014, Governor Costa in a speech to the Parliament Committee of Inquiry stated that the “plan A” for BES involved immediate capitalization of the bank, with preferable recourse to private investors. Governor Costa discussed that BOP had various contingency or “plan B” scenarios in case that the private capitalization would not be feasible in time. The BOP governor also negotiated with the ECB Governing Council on August 1, 2014, to delay the suspension of BES as a Eurosystem counterparty for three days until the BOP could submit a resolution plan (Costa 2014b).
In December 2015, the BOP decided to retransfer liabilities related to non-subordinated bonds of BES to the bad bank with a nominal value of EUR 2 billion. The BOP’s ability to conduct this retransfer was deemed necessary to ensure that losses at BES were absorbed by shareholders and subordinated debt holders, rather than the Resolution Fund (World Bank Group 2016). Novo Banco had outstanding senior unsecured debt of EUR 5.4 billion at the time, which created uncertainty among investors about the different treatment of creditors in the same hierarchy of claims. Fourteen asset managers sued to recoup their bond investments in Novo Banco citing discrimination and pointing out that Portuguese retail investors that held similar bonds did not bear losses (Hale and Arnold 2016). This move by the BOP was also seen by journalists as a break in the pari passu clause, which created a difference in treatment between bonds governed by Portuguese law and those by foreign law (The FT View 2016).
Legal Authority1
The BOP acted under Article 146(1) of the Legal Framework of Credit Institutions and Financial Companies (Regime Geral das Instituições de Crédito e Sociedades Financeiras, or RGICSF) Decree-Law no. 298/92 of 31 December 1992 to impose resolution procedures on BES. Article 153-B of the RGICSF was used to establish the Resolution Fund (BOP 2014a).
The Resolution Fund was created in 2012 by Portuguese Decree-Law no. 31-A/2012, with the purpose of assisting the BOP’s resolution procedures. The loan to the Resolution Fund was provided by the Portuguese law no. 83-C/2013 of 31 December (EC 2014b). In 2015, the EC and BOP extended the maturity of the GGBBs provided to Novo Banco under Article 107(3)(b), Article 107(1) and Article 108(3) of the Treaty on the Functioning of Europe (EC 2015).
For more details on the resolution and restructuring of BES, see Gupta (2024).
Administration1
The Bank of Portugal’s Resolution Fund administered the capital injection to Novo Banco (BOP 2014b). The board of directors of the BOP gathered at an extraordinary meeting to formulate the resolution plan which presented the capital injection by the Resolution Fund. The proceedings were convened under Article 103 (a) of the Administrative Procedures Code (Código de Procedimento Administrativo) (BOP 2014a).
The BOP’s board presented steps in the resolution plan for the establishment of the new bank, the development of its bylaws, the development of a communication strategy for BES’s existing clientele, the valuation and transfer of assets between the resulting bad and good bank, and the appointment of new board members and auditors for BES. The board also appointed PwC as the valuation agent for BES (BOP 2014a).
The Resolution Fund is independently financed and governed by its own steering committee, but the Fund relies on the BOP’s technical and administrative infrastructure to operate. The steering committee of the Fund consists of a president and general secretary, an individual appointed by the Ministry of Finance and a staff member from the Bank of Portugal appointed by its board of directors (Resolution Fund n.d.; Resolution Fund 2014a).
Governance1
The BOP was to appoint a board of directors and a board of auditors to oversee Novo Banco, along with recommendations from the management committee of the Resolution Fund. The board of auditors was to submit a report to the Resolution Fund and the BOP as per Article 17 of the Notice of Banco de Portugal No 13/2012. Members of the two corporate bodies were to remain in office for a period of two years, extendable by one year in the event of an extension of the period to sell Novo Banco (BOP 2014a).
A general meeting was to be formed, which had the right to deliberate on a list of topics for Novo Banco, including the distribution of profits. The board of auditors was required to meet at least once every two months (BOP 2014a).
The Resolution Fund was initially created to assist the BOP, as the national regulation authority, in the execution of resolution procedures. After the introduction of the Single Resolution Mechanism (SRM) in August 2016, the Resolution Fund became responsible for providing funding for financial measures that are outside of the scope of the SRM. The Resolution Board is expected to submit its annual accounts to Portugal’s Ministry of Finance by March 31 every year (Resolution Fund n.d.).
As per section 6.5 of the 2013 Banking Communication, the Portuguese government had to file regular reports to the EC, including consulting the EC for the appointment of the monitoring trustee by the Resolution Fund. Novo Banco was expected to have a strict compensation policy, with total compensation of any employee not exceeding 15 times in the first year, or 10 times in the second year, of the average salary of employees at bank (EC 2014b).
The resolution of BES by Portuguese authorities took place before the BRRD came into force; hence the sale process of the Novo Banco was to be governed by Portuguese resolution laws (EC 2017a).
Communication1
The BOP communicated the capital injection and resolution for BES through press releases, annual report disclosures, governor speeches, financial stability reports, and EC State Aid disclosures. In September 2014, Portugal’s prime minister Pedro Passos Coelho emphasized that the sale of Novo Banco needs to be quick to keep risk mitigated, while ensuring the best possible terms of sale (Reuters 2014c).
In a speech, BOP governor Costa confirmed that the resolution was to address the rapidly deteriorating financial position of BES. The dual goal of the resolution was stated by the governor as guaranteeing deposit protection and ensuring financial stability. Governor Costa emphasized that the Resolution Fund’s financial resources did not come from state resources, but was funded from levies on the banking system and representing an integral part of the European financial stability model (Costa 2014a). But, as reported in Key Design Decision No. 9, Size and Sources of Funding, the Portuguese state provided a loan of EUR 3.9 billion to the Resolution Fund in 2014 (Resolution Fund 2014b). In conclusion, Governor Costa noted that “fraudulent funding schemes” such as those of the ES group are often difficult to detect due to a group’s widespread activities in various jurisdictions. The governor credits the BOP’s ETRICC2 process (involving horizontal review of credit portfolio impairment) for early detection of the problem at the ES group in September 2013, which allowed the BOP to ring-fence some of the ES group’s assets. Overall, Governor Costa mentioned that safeguarding taxpayers and public funds was core to the solution pursued by the BOP (Costa 2014a).
Additionally, the governor stated in the same speech that ESFG (the financial arm of the ES group) had been “subject to unparalleled balance sheet scrutiny” due to Portugal’s participation in the Economic and Financial Assistance Program since mid-2010. Governor Costa added that the BOP’s decisions with regards to the EFSG were to ensure public confidence and maintain financial system stability (Costa 2014b).
As for learnings from the event, Governor Costa believes that the legal framework needs improvement to allow BOP more powers to adequately monitor and supervise financial institutions, along with the introduction of specific tools to tackle off-balance sheet troubled assets, as in the case of BES (Costa 2014b).
BOP’s capital injection and resolution plan was not without controversy. As recently as 2022, a local court in Portugal alleged that the public interest had not been safeguarded by BOP since Novo Banco could require an additional EUR 1.6 billion in capital injection (Donn 2022). In 2021, the Fitch rating agency commented that the Portuguese banking system would benefit from clarity on the certainty and timing of a capital injection into Novo Banco by the BOP (Fitch Ratings 2021). After Portuguese opposition parties blocked an additional capital injection in 2020, the finance minister João Leão had to reaffirm to the media that Portugal would continue to meet its obligations to Novo Banco (Goncalves 2020).
The BOP’s regulatory action of transferring EUR 2.2 billion of senior bonds from Novo Banco to the bad bank in December 2015 created uproar among financial investors and commentators, and later led to a lawsuit by 14 asset managers (Hale and Arnold 2016). Commentators in the Financial Times referred to the Novo Banco Case as a “debacle” and “saga”, while quoting BlackRock, which deemed the retransfer of senior bonds by the BOP “unlawful” (Hale 2018a, 2; Hale 2018b, 1). The Novo Banco case was referred to as a precedent where the public interest clause was used to override contractual claims or legal proceedings (Hale 2018a). This move also led to uncertainty in the senior unsecured debt markets, as investors became concerned that this debt was also bail-in-able (see Figure 3) (Hale 2016).
Figure 3: Senior Bond Prices of Novo Banco from December 2015 and March 2016
Source: (Hale 2016)
Treatment of Creditors and Equity Holders1
In the 2014 resolution, all equity and subordinated debt holders were subjected to losses, as for any capitalization plan that requires the use of public funds. All of BES’s subordinated debt of EUR 902.5 million was termed as “excluded liabilities” and was to remain in the bad bank to be written down. All depositors were to continue a stable relationship with Novo Banco and have access to all bank services (BOP 2014a). As of June 2017, Novo Banco had deposits of EUR 25.4 billion (EC 2017b). All the loss sharing rules have been derived from the EC’s 2013 Banking Communication (EC 2014a).
In 2015, the BOP imposed losses on some senior bondholders by retransferring EUR 2.2 billion from Novo Banco to the bad bank (BES 2016a). The EC stated in 2017 that imposing greater losses on senior creditors to lower the cost to the Resolution Fund was in line with State Aid rules. But the decision to impose losses on senior creditors was solely of the Portuguese authorities. As per the EC, the shareholders and subordinated debt holders of BES absorbed nearly EUR 7 billion of losses (EC 2017a). See Figure 1 for a list of the major shareholders of BES before the application of the resolution.
Novo Banco attempted to raise Tier-2 capital in 2018 for the first time since the resolution at a minimum yield of 8.5%, which was 200 to 300 basis points higher than that for peers at the time. This attempted capital raise by Novo Banco also comprised a controversial clause, which allowed the bank to change the underlying governing law for the bonds without prior approval from the issuer (Smith 2018).
Capital Characteristics1
The Resolution Fund wholly owned the share capital of Novo Banco amounting to EUR 4.9 billion. The share capital of Novo Banco was represented by 4.9 billion shares with nominal value of EUR 1 per share (BOP 2014a). Dividend and coupon payments by Novo Banco were suspended (EC 2014b).
The Resolution Fund is the sole owner of the share capital of Novo Banco in 2015 (Novo Banco 2015). See Key Design Decision No. 5, Governance, for details.
Source and Size of Funding1
The Resolution Fund provided EUR 4.9 billion of equity capital to Novo Banco (EC 2014b). The Resolution Fund was to receive a EUR 4.5 billion loan from the Portuguese state (EC 2014a). As per the Resolution Fund’s disclosures, the state provided only EUR 3.9 billion. A group of Portuguese credit institutions—Caixa Geral de Depósitos; Banco Comercial Português; Banco BPI; Banco Santander Totta; Caixa Económica Montepio Geral; Banco Popular; Banco BIC Português; and Caixa Central do Crédito Agrícola Mútuo—provided EUR 700 million to the Resolution Fund (Resolution Fund 2014b). The Resolution Fund also had EUR 365 million from previous contributions by the financial and banking sector (Resolution Fund 2014b).
The conditions of the sale of Novo Banco in 2017 required the creation of a CCA, which required the Resolution Fund to provide up to EUR 3.9 billion of additional capital injections (Resolution Fund 2014b). As per Figure 4, between 2018 and 2021, the Resolution Fund provided a total of EUR 3.4 billion in several capital injections to Novo Banco in response to capital shortfalls at the bank.
On June 16, 2014, BES raised EUR 1.1 billion via a public markets offering from the issuance of 1.6 billion new common shares (BES 2015). This was not a part of the BOP’s resolution plan.
Timing1
The first capital injection of EUR 4.9 billion into Novo Banco took place on August 3, 2014, and was provided by the Resolution Fund all at once (Novo Banco 2015).
In 2017, Lone Star purchased 75% of Novo Banco and committed to infuse EUR 1 billion, with EUR 750 million being committed immediately and EUR 250 million to be provided within three years (Wise 2017).
The Lone Star deal also comprised the Resolution Fund committing to a CCA of EUR 3.9 billion to Novo Banco if capital ratios drop below specific thresholds (Fitch Ratings 2021). This capital was committed to Novo Banco in five separate capital injections between 2018 and 2021 amounting to a total of EUR 3.4 billion (see Figure 4).
Restructuring Plan1
The BOP created a bridge bank, Novo Banco, with select assets and liabilities of BES, which received the first capital injection of EUR 4.9 billion from the Resolution Fund. A bad bank was created with the impaired assets of BES and was liquidated. The BOP utilized the bad bank to ascribe losses of EUR 3.7 billion by equity holders and EUR 927 million by the subordinated debt holders at the time of the resolution. Novo Banco was expected to be sold in a private auction by December 31, 2016. For details, see Gupta (2024).
Treatment of Board and Management1
In July 2014, Ricardo Salgado, the head of BES for 23 years, was held in custody hearings in relation to several alleged crimes, including tax evasion and money laundering (BBC 2014a). BOP’s governor Carlos da Silva Costa stated in a speech on August 3, 2014, that the BOP was conducting a forensic audit to determine if any illicit acts were committed by the management of BES (Costa 2014a). In 2023, Portugal’s Competition Court consolidated all of the fines imposed on Salgado to EUR 8 million, and the Supreme Court reduced his prison sentence from eight years to six (Fernandes 2023; Graeme 2023).
For details on the resolution and restructuring of BES, see Gupta (2024).
Other Conditions1
Novo Banco was not allowed to price deposits at higher than market average rates, as determined by the Statistical Department of the BOP, in line with Regulation (EC) 290/2009. Similarly, Novo Banco could not provide loans at below market rates, both of which were monitored on a monthly basis. The 2015 resolution amendment assigned performance targets for Novo Banco in the reduction of cost base, full time employees, and bank branches. Novo Banco was also restricted to only investing in investment grade or euro area sovereign securities (EC 2015).
The CCA was signed between the Resolution Fund and Novo Banco in 2017 and came into effect retroactively from June 30, 2016. A CCA payment required Novo Banco’s CET1 ratio to drop below the range of 8 to 13%, assuming Lone Star had completed its EUR 1 billion capital injection into Novo Banco. In 2017, Novo Banco had to commit to further shrink its full time employees and bank branches if public funds were used in its recapitalization (EC 2017b).
The EC stressed the importance of Novo Banco providing loans at a pre-tax return on equity (RoE) of less than 7 to 10% in 2018, 8 to 11% in 2019, and 9 to 12% in 2020. Such restrictions were provided to ensure that State Aid is not used to promote distortive behavior in the deposit markets (EC 2017b).
The EC discussed that Novo Banco or the bridge bank would be allowed to compete with private market players, despite finding that the BOP’s measures were distorting competition by providing capital to avoid insolvency. Portugal had to commit to an advertising ban (of not referring to any state financial support) and a bank acquisition ban to the EC (EC 2014b).
Regulatory Relief1
There was no other disclosed or identifiable regulatory relief provided to facilitate the capital injection and restructuring of Novo Banco.
Exit Strategy1
As per the 2014 plan, the bridge bank or Novo Banco was to be sold by August 2016 and the bad bank was to enter insolvency proceedings no later than December 31, 2016 (EC 2014b).
The BOP acknowledged missing the deadline for the sale for Novo Banco in September 2015 after talks with the lead bidders broke down, with rumors of a Chinese insurance company and Apollo Global as the potential bidders. It was reported that Novo Banco had been unable to secure a high auction price due to the parent BES’s history of unchecked lending to the ES group. The BOP had separately accused Ricardo Salgado, BES’s former head, of mismanagement and concealment of information on actual losses prior to debt sales to investors (Minder 2015).
In January 2017, the Portuguese finance minister Mário Centeno stated that the government was not prepared to provide a full state guarantee to the potential buyer (Bugge 2017). The Portuguese prime minister Costa added in March that the cost to the state to nationalize Novo Banco would be EUR 4.0 to 4.7 billion, including exposure to “limitless liabilities” in the future (Wise 2017).
In March 2017, the BOP and Resolution Fund sold 75% of Novo Banco to Lone Star Capital, thereby securing a capital injection of EUR 1 billion into the bank and completing the role of the bridge bank prior to the August 2017 sale deadline. The deal between Lone Star and the Resolution Fund also included a “liability management exercise” of senior unsecured bondholders, which was expected to provide EUR 500 million of additional CET1 capital but was later declared unsuccessful in October 2017. The Resolution Fund would continue to hold 25% in Novo Banco (EC 2017b). Novo Banco was also restricted from providing dividends to Lone Star for five years to ensure maximum capital to strengthen the bank’s capital and viability (Wise 2017).
Novo Banco received EUR 3.4 billion of capital injections by the Resolution Fund between 2018 and 2021 to cover capital shortfalls related to its legacy portfolio (see Figure 4). The last capital injection was in December 2021. The restructuring of Novo Banco was successfully completed in December 2022. In February 2023, the EC agreed with the Portuguese authorities’ assessment that the resolution process was over (Goncalves 2023). The Portuguese ministry’s statement marked the event as “an important stage in the stabilization of the national financial system” (Goncalves 2023).
Figure 4: Contingency Capital Drawdown by the Resolution Fund
Sources: (Arnold 2018; EC 2017b; Fitch Ratings 2021; Goncalves 2021a; Goncalves 2021b; Wise 2019)Please see Figure 5 for the other capital injections into Novo Banco.
Figure 5: Additional Capital Injections into Novo Banco
Source: Authors’ analysis. As of November 2023, the Government of Portugal continues to hold a 25% stake in Novo Banco, including 13% held by the Resolution Fund and 12% held by the General Directorate of Treasury and Finance (Direção-Geral do Tesouro e Finanças) (Novo Banco 2023c).
Key Program Documents
(BOP 2014a) Bank of Portugal (BOP). 2014a. “Extraordinary Meeting of the Board of Directors of Banco de Portugal,” August 3, 2014.
Document disclosing minutes of a meeting by the board of BOP to set up Novo Banco and appoint a new board of directors and auditors.
Key Program Documents
(European Parliament and Council of the European Union 2014)
Directive aimed to set out new rules to deal with troubled financial institutions, to avoid bailouts that involve the use of taxpayers’ money in future cases of bank failure, and to establish common EU rules for the recovery and restructuring of failing banks.
Key Program Documents
(Arnold 2018) Arnold, Martin. 2018. “Portuguese Lender Novo Banco Slumps to a €1.4bn Loss.” Financial Times, March 28, 2018.
Article providing an update on the financial health of Novo Banco.
(BBC 2014a) BBC. 2014a. “Portugal’s Banco Espirito Ex-Boss Arrested.” July 24, 2014.
Article presenting the fate of the former management of BES.
(BBC 2014b) BBC. 2014b. “Portugal Unveils Bank Rescue Plan.” August 4, 2014.
Article describing the rescue plan for BES presented by the Bank of Portugal.
(Benedetti-Valentini 2014) Benedetti-Valentini, Fabio. 2014. “Credit Agricole Rises as Banco Espirito Santo Risk Cut.” Bloomberg, August 5, 2014.
Article describing the positive market reaction to the reduction in risk for one of France’s largest banks.
(Bugge 2017) Bugge, Axel. 2017. “Lone Star Picked as Top Candidate to Buy Portugal’s Novo Banco.” Reuters, January 5, 2017.
Article confirming the selection of a prospective buyer for Novo Banco.
(Donn 2022) Donn, Natasha. 2022. “Novo Banco: Government and Bank of Portugal ‘Did Not Safeguard Public Interest.’” Portugal Resident, July 12, 2022.
Article presenting the view of a local court in Portugal on the rescue of BES.
(Ewing and Bray 2014) Ewing, Jack, and Chad Bray. 2014. “Banco Espírito Santo to Be Split Up in Rescue by Portugal.” New York Times, August 3, 2014.
Article describing the rescue of BES by the Bank of Portugal.
(Fernandes 2023) Fernandes, Sheras. 2023. “Portugal’s Competition Court Consolidates Fines of Eight Million Euros Imposed on Ricardo Salgado.” BNN Breaking, September 24, 2023.
Article detailing the fines imposed on the founder of BES.
(Goncalves 2020) Goncalves, Sergio. 2020. “Portugal Will Not Renege on Novo Banco Commitments: Finance Minister.” Reuters, November 27, 2020.
Article presenting a statement by the finance minister of Portugal on Novo Banco.
(Goncalves 2021a) Goncalves, Sergio. 2021a. “Portugal’s Resolution Fund Pumps $386 Mln into Novo Banco.” Reuters, June 5, 2021.
Article disclosing a capital injection into Novo Banco by the Portuguese Resolution Fund.
(Goncalves 2021b) Goncalves, Sergio. 2021b. “Portugal’s Resolution Fund Injects $127 Million into Novo Banco.” Reuters, December 24, 2021.
Article disclosing a capital injection into Novo Banco by the Portuguese Resolution Fund.
(Goncalves 2023) Goncalves, Sergio. 2023. “Portugal Closes Novo Banco’s Access to State Funding after Restructuring – Ministry.” Reuters, February 13, 2023.
Article describing a regulatory action on Novo Bank after its restructuring.
(Graeme 2023) Graeme, Christopher. 2023. “Supreme Court Accepts BES Banker’s Appeal.” Essential Business, November 6, 2023.
Article discussing the reduction in prison sentence for the founder of BES.
(Hale 2016) Hale, Thomas. 2016. “European Banks: New Rules, Old Problems.” Financial Times, March 30, 2016.
Article discussing the fate of European banks after new rules adopted by regulatory bodies.
(Hale 2018a) Hale, Thomas. 2018a. “The Novo Banco Debacle and the Rule of Law in Europe.” Financial Times, January 19, 2018.
Article evaluating the various decisions taken by the resolution of BES by the Portuguese authorities.
(Hale 2018b) Hale, Thomas. 2018b. “The Novo Banco Saga Continues.” Financial Times, June 28, 2018.
Article providing an update on the controversies of Novo Banco’s resolution plan.
(Hale and Arnold 2016) Hale, Thomas, and Martin Arnold. 2016. “Fourteen Asset Managers Sue Portuguese Central Bank.” Financial Times, April 4, 2016.
Article presenting the legal case following a move by the BOP.
(Kowsmann 2014a) Kowsmann, Patricia. 2014a. “Audit Cites Problems at Portugal’s Espírito Santo International.” Wall Street Journal, May 21, 2014.
Article describing the financial interlinkages between BES and the ES group as per a recent audit.
(Kowsmann 2014b) Kowsmann, Patricia. 2014b. “Bank of Portugal Unveils Plan to Rescue Banco Espírito Santo.” Wall Street Journal, August 3, 2014.
Article describing the rescue plan for BES presented by the Bank of Portugal.
(Kowsmann and Patrick 2014) Kowsmann, Patricia, and Margot Patrick. 2014. “Apollo Among Firms Circling Portugal’s Novo Banco.” Wall Street Journal, December 29, 2014.
Article describing the potential acquirers for Novo Banco.
(Minder 2014a) Minder, Raphael. 2014a. “In Portugal, Ex-Chief of Bank Is Arrested.” New York Times, July 24, 2014.
Article describing the arrest of the head of BES after the bank’s collapse.
(Minder 2014b) Minder, Raphael. 2014b. “Banco Espírito Santo Posts $4.8 Billion Loss.” New York Times, July 30, 2014.
Article notifying of the large capital shortfall at BES.
(Minder 2015) Minder, Raphael. 2015. “Portugal, Missing Deadline for Novo Banco Sale, Turns to Second Bidder.” New York Times, September 1, 2015.
Article providing an update to the sale process for Novo Banco.
(Reis and Almeida 2015) Reis, Anabela, and Henrique Almeida. 2015. “Portugal Imposes Losses on Some Novo Banco Senior Bonds.” Bloomberg, December 30, 2015.
Article describing a decision by Portuguese regulators to address the capital shortfall at Novo Banco.
(Reuters 2014a) Reuters. 2014a. “BES Chief Executive Says Family Lost Control of Bank,” June 11, 2014.
Article describing the alleged mismanagement of BES by its founders.
(Reuters 2014b) Reuters. 2014b. “Credit Agricole Takes $950M Espirito Santo Hit.” CNBC, August 5, 2014.
Article describing the financial loss at one of France’s largest banks due to BES.
(Reuters 2014c) Reuters. 2014c. “Portugal PM Says Novo Banco Sale Has to Be Quick as Risks Grow,” September 15, 2014.
Article quoting the prime minister of Portugal on the sale process of Novo Banco.
(Reuters 2023) Reuters. 2023. “Portugal’s Novo Banco to Be IPO-Ready in 2024, CEO Says,” November 2, 2023.
Article discussing the plans to launch an IPO for Novo Banco in 2024.
(Smith 2018) Smith, Robert. 2018. “Novo Banco Bond Sale Clouded by Hedge Fund Challenge.” Financial Times, June 27, 2018.
Article describing the challenges in raising capital for Novo Banco after haircutting senior bondholders.
(The FT View 2016) The FT View. 2016. “Bad Luck for Backers of Portugal’s ‘Good Bank.’” Financial Times, January 10, 2016.
Article presenting the investor concerns over various resolution mechanisms across Europe.
(Wise 2017) Wise, Peter. 2017. “Lone Star Acquires 75% of Portugal’s Novo Banco.” Financial Times, March 31, 2017.
Article describing the purchase of a majority of Novo Banco by a US private equity fund.
(Wise 2019) Wise, Peter. 2019. “Portugal’s Novo Banco to Receive New Capital Injection after Posting €1.4bn Loss.” Financial Times, March 1, 2019.
Article providing an update on the financial health of Novo Banco.
(Wise 2020) Wise, Peter. 2020. “Prosecutors Accuse Ex-Chief over Collapse of Banco Espírito Santo.” Financial Times, July 15, 2020.
Article describing the allegations against the founder of BES by the Portuguese authorities.
Key Program Documents
(BES 2014a) Banco Espírito Santo (BES). 2014a. “Banco Espírito Santo, S.A. Informs on Exposures to Espírito Santo Group.” Press release, July 10, 2014.
Disclosure presenting the full extent of exposure of BES to the ES group.
(BES 2016a) Banco Espírito Santo (BES). 2016a. “Communication relating to BES’s Financial Statements as of December 31, 2015.” Press release, May 23, 2016.
Press release disclosing the updated financials for BES for the full year 2015 (in Portuguese).
(BES 2016b) Banco Espírito Santo (BES). 2016b. “Liquidation Committee Message.” Announcement, July 28, 2016.
Announcement disclosing the winding up of the bad bank BES.
(BOP 2014b) Bank of Portugal (BOP). 2014b. “Press Release of Banco de Portugal on the Application of a Resolution Measure to Banco Espírito Santo, S.A.” Press release, August 3, 2014.
Document disclosing the initiation of a resolution procedure for Banco Espírito Santo by the Bank of Portugal.
(BOP 2015a) Bank of Portugal (BOP). 2015a. “Press Release of Banco de Portugal on the Novo Banco Sale Process.” Press release, September 15, 2015.
Notice providing an updated decision by the BOP to pause and extend the sale timeline for Novo Banco.
(BOP 2015b) Bank of Portugal (BOP). 2015b.
Notice disclosing the findings of the ECB’s stress test of Novo Banco.
(BOP 2015c) Bank of Portugal (BOP). 2015c. “Comunicado do Banco de Portugal sobre acordo alcançado com a Comissão Europeia relativo ao Novo Banco.” Press release, December 21, 2015.
Report confirming the end of the ECB’s stress test of Novo Banco (in Portuguese).
(BOP 2023) Bank of Portugal (BOP). 2023. “Conclusão do processo de reestruturação do Novo Banco.” Press release, February 13, 2023.
Report disclosing the end of the restructuring of Novo Banco (in Portuguese).
(Costa 2014a) Costa, Carlos da Silva. 2014a. “The Application of a Resolution Measure to Banco Espírito Santo.” Speech, August 3, 2014.
Transcript of a speech made in Lisbon by the Bank of Portugal’s governor about the resolution procedures applied to BES.
(Costa 2014b) Costa, Carlos da Silva. 2014b. “Address to the Banco Espírito Santo and Grupo Banco Espírito Santo Parliamentary Inquiry.” Speech, November 17, 2014.
Transcript of a speech given by the Bank of Portugal’s governor to an inquiry committee about BES.
(EC 2014a) European Commission (EC). 2014a. “State Aid: Commission Approves Resolution Aid for Portuguese Banco Espírito Santo.” Press release, August 4, 2014.
Document providing the European Commission’s approval of the Bank of Portugal’s resolution plan for BES.
(GOP 2023) Government of Portugal (GOP). 2023. “Plano de reestruturação do Novo Banco concluído.” Press release, February 13, 2023.
Document disclosing the end of the restructuring of Novo Banco (in Portuguese).
(Lopes 2022) Lopes, João Pimenta. 2022. “Management of Novo Banco by Lone Star, Bank Recovery and Resolution Criteria and Capital Requirements.” Parliamentary question E-002289/2022, June 27, 2022.
Note disclosing a question posed in the European Parliament on the resolution of Novo Banco.
(PCP 2022) Portuguese Communist Party (PCP). 2022. “The Court of Auditors’ Audit Report on the Management of Novo Banco Confirms Options That Are Harming the Country in Billions of Euros,” July 12, 2022.
Report presenting a criticism of Novo Banco’s restructuring by an opposition political party.
(Resolution Fund n.d.) Resolution Fund. n.d. “Mission and Functions.” Accessed October 5, 2023.
Webpage providing an overview of a national resolution authority created by the Bank of Portugal (in Portuguese).
(Resolution Fund 2014a) Resolution Fund. 2014a. “Organic and Functioning.” 2014. Accessed October 5, 2023.
Webpage providing an overview of a national resolution authority created by the Bank of Portugal (in Portuguese).
(Vestager 2022) Vestager, Margrethe. 2022. “Answer given by Executive Vice-President Vestager on Behalf of the European Commission.” Parliamentary question E-002289/2022(ASW), August 4, 2022.
Note presenting the written response by a member of the EC to a question posed in the European Parliament.
(EC 2015) European Commission (EC). 2015. “State Aid N° SA.43976 (2015/N) – Portugal Amendment of the 2014 Resolution of Banco Espírito Santo, S.A.,” December 19, 2015.
Document discussing the EC’s view on the amendment to the 2014 rescue plan for BES.
(EC 2017a) European Commission (EC). 2017a. “State Aid: Commission Approves Portuguese Restructuring Plan and Support for Sale of Novo Banco, Completing 2014 Resolution of Banco Espírito Santo.” Press release, October 11, 2017.
Document providing the European Commission’s approval of the resolution plan for Novo Banco.
(EC 2017b) European Commission (EC). 2017b. “State Aid N° SA.49275 (2017/N) – Portugal Sale of Novo Banco with Additional Aid in the in the [sic] Context of the 2014 Resolution of Banco Espírito Santo, S.A.,” October 11, 2017.
Document providing the European Commission’s approval of the resolution plan for Novo Banco.
(Fitch Ratings 2015) Fitch Ratings. 2015. “Delayed Novo Banco Sale Unfavourable for Portuguese Banks.” Fitch Wire, September 30, 2015.
Document providing an updated view by a leading ratings agency on the plan to delay the sale timeline for Novo Banco.
(Fitch Ratings 2021) Fitch Ratings. 2021. “Clarity on Novo Banco Capital Injections Could Help Portuguese Banks.” Fitch Wire, January 7, 2021.
Notice providing an update by the credit ratings agency Fitch on Novo Banco.
(Machado 2019) Machado, Pedro. 2019. “The Portuguese Experience on Banking Resolution – Challenges and Lessons Learned.” Speech, October 9, 2019.
Report discussing the resolution of BES in 2014 by the Bank of Portugal’s Chief Legal Counsel.
(Novo Banco 2023b) Novo Banco. 2023b. Annual Report 2022.
Novo Banco annual report for the year 2022.
(Novo Banco 2023c) Novo Banco. 2023c. “Investor Presentation.” November 2023.
Presentation providing a financial and operations update to investors.
(Resolution Fund 2014b) Resolution Fund. 2014b. “Financing of Resolution Measures.” 2014.
Document describing the various financing contributions to Portugal’s Resolution Fund in 2014 (in Portuguese).
Key Program Documents
(Novo Banco 2023a) Novo Banco. 2023a. “Novo Banco, S.A. Informs about Multi-Notch Rating Upgrade by DBRS Morningstar.” Announcement, December 13, 2023.
Report disclosing the ratings upgrade for Novo Banco.
(BES 2014b) Banco Espírito Santo (BES). 2014b. Annual Report 2013.
BES annual report for the year 2013.
(BES 2015) Banco Espírito Santo (BES). 2015. Annual Report 2014.
BES annual report for the year 2014.
(BES 2016c) Banco Espírito Santo (BES). 2016c. Annual Report 2015.
BES annual report for the year 2015.
(EC 2014b) European Commission (EC). 2014b. “State Aid N° SA.39250 (2014/N) – Portugal, Resolution of Banco Espírito Santo, S.A.,” August 3, 2014.
Document detailing the resolution mechanism drafted by the Bank of Portugal for BES.
(Novo Banco 2015) Novo Banco. 2015. Annual Report 2014.
Novo Banco annual report for the year 2014.
Key Program Documents
(Albuquerque and Branco 2016) Albuquerque, Mariana Solá de, and Luís Branco. 2016.
Study assessing the implementation of the BRRD in Portugal.
(Gupta 2024) Gupta, Salil. 2024. “Portugal: Banco Espirito Sancto Restructuring, 2014.” Journal of Financial Crises 6, no: 1:436-485.
YPFS case study examining the restructuring of Banco Espírito Santo by the Bank of Portugal.
(IMF 2015) International Monetary Fund (IMF). 2015. “Portugal: First Post-Program Monitoring Discussions.” IMF Country Report No. 15/21, January 2015.
Report summarizing the IMF staff’s discussions on the economic and banking system of Portugal.
(Orrick 2014) Orrick. 2014. “The Nationalisation of Banco Espirito Santo – The Aftermath,” August 11, 2014.
Note studying the resolution of BES in context of National and European laws.
(Rhee, Hoffner, et al. 2024) Rhee, June, Benjamin Hoffner, Greg Feldberg, and Andrew Metrick. “Survey of Ad Hoc Capital Injections.” Journal of Financial Crises 6, no. 3.
Survey of YPFS case studies examining ad hoc capital injections.
(Rhee, Oguri, et al. 2022) Rhee, June, Junko Oguri, Greg Feldberg, and Andrew Metrick. “Broad-Based Capital Injection Programs.” Journal of Financial Crises 4, no. 1: 1-48.
Survey of YPFS case studies examining broad-based capital injection programs.
(World Bank Group 2016) World Bank Group. 2016. “Bank Resolution and ‘Bail-In’ in the EU: Selected Case Studies Pre and Post BRRD.” 2016.
Study presenting an assessment of the bail-in tool across European resolutions.
Taxonomy
Intervention Categories:
- Ad Hoc Capital Injections
Institutions:
- Banco Espirito Sancto
Countries and Regions:
- Portugal
Crises:
- European Soverign Debt Crisis