Despite communications by Novo Banco and most recently by Bank of Portugal, opacity remains on the detailed A&Ls that will remain with BES as business to be unwound. We summarise below our understanding based on the information provided so far.
We expect the following items will remain with BES:
Debt exposures toward ESI, ESFG and their shareholders – with the exceptions of exposures toward Tranquilidade;
Eur 10m cash, to administer the wind down proceedings;
345m Treasury shares;
Equity holdings in BESA, Espirito Santo Bank and Aman Bank (Angolan, US and Libyan operations respectively);
On the liability side, all equity and subordinated debt holders;
Liabilities belonging to shareholders owning a stake > 2%, board members and auditors, current or past (up to 4 previous years, if it is proved that their actions led or contributed to create BES' financials difficulties), including their spouses or relatives of first degree;
Liabilities related to GES, including securities in issue and third party guarantees
Any liability stemming from fraud or regulatory infringement;
Any liability generated by the placing of subordinated debt and equity; and
Any liability generated by the distribution or financial intermediation of GES liabilities.
The fact that no explicit reference is made to A&L of BESA, Espirito Santo Bank and Aman Bank seem to suggest that these will be transferred to Novo Banco. This appears to be confirmed by the statement released by Bank of Portugal on 11 August 2014, according to which loans and deposits of the mentioned entities will be moved to Novo Banco.
Novo Banco itself issued a statement on 5 August 2014, showing "adjustments" to the assets and "exclusion" to the liabilities based on BES unconsolidated financial position as at 30th June 2014. Overall, Eur 4.42bn asset writedowns, net of Eur 1.14bn DTA generation, underpinned the creation of Novo Banco. The asset writedowns were related to customer loans and interbank loans and it is possible to interpret the latter as a negative adjustment on the infra-group exposure to BES Angola.
Overall, we see remaining A&L of BES as follows:
Total assets of Eur 2.39bn gross (Eur 1.22bn net of provisions set aside in 2Q14);
Total liabilities of Eur 8.47bn, including equity, subordinated creditors and liabilities toward GES creditors.
Based on the above, we see poor potential for recoveries for equity and subordinated paper holders. Any recovery potential of equity and sub could arguably be accrued by the Good Bank, based on the burden sharing principle within the State Aid framework enforced by the EU since 1 August 2013.