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“The Cost Is Very High”: Portugal Taxpayers Face €3 Billion Loss After Second Bank Bailout In 2 Years

December 21, 2015

“The Cost Is Very High”: Portugal Taxpayers Face €3 Billion Loss After Second Bank Bailout In 2 Years

Back in August of 2014, Portugal had an idea.

Lisbon would use some €5 billion from the country’s Resolution Fund to shore up (read: bailout) Portugal’s second largest bank by assets, Banco Espirito Santo. The idea, basically, was to sell off Novo Banco SA (the “good bank” that was spun out of BES) in relatively short order and use the proceeds to pay back the Resolution Fun. That way, the cost to taxpayers would be zero.

You didn’t have to be a financial wizard or a fortune teller to predict what was likely to happen next.

Unsurprisingly, the auction process didn’t go so well. As we recounted in September, there were any number of reasons why Portugal had trouble selling Novo, not the least of which was that two potential bidders – Anbang Insurance Group and Fosun International which, you’re reminded, is run by the recently “disappeared” Chinese Warren Buffett – suddenly became far more risk-averse in the wake of the financial market turmoil in China. Talks with US PE (Apollo specifically) also went south, presumably because no one knows if this “good” bank will actually turn out to need more capital going forward given that NPLs sit at something like 20% while the H1 loss totaled €250 million thanks to higher provisioning for said NPLs. Now, the auction process has been mothballed and will restart in January.

This matters because if the bank can’t be sold, the cost of the bailout ends up being tacked onto Lisbon’s budget. The impact is substantial. In September, when the effort to sell Novo collapsed, the government restated its 2014 deficit which, after accounting for the bailout, ballooned to 7.2% of GDP from 4.5%.

…click on the above link to read the rest of the article…

Greek Bad Debt Rises Above 50% For The First Time, ECB Admits

October 31, 2015

Greek Bad Debt Rises Above 50% For The First Time, ECB Admits

It was almost exactly one year ago, on October 26, 2014, when the ECB concluded its latest European Stress Test. As had been pre-leaked, some 25 banks failed it, although the central bank promptly added that just €9.5 billion in net capital shortfall had been identified. What was more surprising is that to the ECB, the Greek banks – Alpha Bank, Eurobank Ergasias, National Bank of Greece, and PiraeusBank had entered Schrodinger bailout territory: they had both failed and passed the test at the same time. To wit:

These banks have a shortfall on a static balance sheet projection, but will have dynamic balance sheet projections (which have been performed alongside the static balance sheet assessment as restructuring plans were agreed with DG-COMP after 1 January 2014) taken into account in determining their final capital requirements. Under the dynamic balance sheet assumption, these banks have no or practically no shortfall taking into account net capital already raised.

Got that? According to the ECB, last October Greek banks may have failed the stress test, but under “dynamic conditions” they passed it. What this meant was unclear at the time, although as we explained this was nothing more than an attempt to boost confidence in Europe’s banking sector. This was the key quote from the ECB’s Vítor Constâncio: “This unprecedented in-depth review of the largest banks’ positions will boost public confidence in the banking sector. By identifying problems and risks, it will help repair balance sheets and make the banks more resilient and robust. This should facilitate more lending in Europe, which will help economic growth.”

It didn’t.

…click on the above link to read the rest of the article…

 

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