Novo Banco’s Exclusion of ECB’s Comprehensive Assessment Stymies Disclosure
Last Friday, the European Central Bank (ECB) disclosed that Portugal’s Novo Banco, S.A. (B2 review for
downgrade, E/ca review for upgrade8
) will not be participating in the central bank’s upcoming
comprehensive assessment.9 Excluding Novo Banco from the ECB review is a missed opportunity to shed
light on the bank’s creditworthiness and financial position, which remains unclear more than two months
after its inception.
Despite positive developments at Novo Banco, significant uncertainties persist around its creditworthiness
and financial profile, including details and clarity about its key financial metrics. Since its formation in
August and its capitalization by the Portuguese Resolution Fund, Novo Banco has not publicly disclosed
any financial information that would provide guidance on the bank’s final balance sheet, profit and loss
account, asset quality, risk absorption capacity or liquidity position. A number of relevant metrics to assess
the bank’s creditworthiness would have been disclosed had the bank participated in the ECB’s
comprehensive assessment, whose details will be announced publicly on 26 October. The exclusion from
this exercise therefore raises questions about when relevant financial details will be made public.
Novo Banco was created after the Portuguese central bank intervened and applied resolution measures to
Banco Espirito Santo S.A. (BES, C stable, E/ca stable) on 3 August in the face of BES’ imminent risk of
default. At the same time, Novo Banco received a €4.9 billion capital injection from the Portuguese
Resolution Fund, which became the bank’s sole shareholder. BES depositors and senior debtholders were
transferred to Novo Banco, while shareholders and holders of hybrid debt instruments remained at BES.
Novo Banco received all assets, liabilities and off-balance sheet items from BES, except the most
problematic asset exposures related to the Espirito Santo Group and its troubled Angolan subsidiary, which
caused the resolution of BES.
The E standalone bank financial strength rating (BFSR) (equivalent to a ca baseline credit assessment) that
we assigned to Novo Banco on 12 August reflects its status as the successor to BES and the high degree of
uncertainty around the bank’s credit profile. However, we placed the rating on review for upgrade and
noted that the BFSR could be upgraded if we determine that Novo Banco is fully and effectively protected
from problematic exposures and contingent liabilities related to BES’ failure.
Novo Banco’s B3 senior debt and B2 deposit ratings reflect the measures that the Portuguese authorities put
in place to protect Novo Banco’s debt and deposit holders from the resolution of BES. Both ratings’ review
for downgrade indicate that they could be lowered if we assess a lower probability of systemic support from
the government and this risk is not offset by potential improvement in the bank’s BFSR.