Breve nota SG su Novo Banco
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Why do we say Go long now? [/FONT] [FONT="]First, the Novo Banco sales process looks firmly to be nearing the end. The risk of that not happening now seems de minimis to us - notwithstanding the very thorny issue of litigation insurance. This removes a major uncertainty. Second, Novo senior spreads have underperformed recently which opens up an interesting (re) entry point. Note that we maintain our negative fundamental opinion which reflects the bank's challenges.[/FONT]
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Entering phase 3, binding bids [/FONT]
[FONT="]The Portuguese press (Expresso, Diario Economico) has indicated that the Bank of Portugal invited five institutions to make non-binding bids on Novo Banco: Santander, Cerberus, Apollo, Fosun and Anbang Insurance. The same sources suggest that Banco BPI's bid has since been rejected as coming in too low and that Santander's bid was €2.5bn. The two Asian bidders are thought to have been far more generous with Anbang, the highest at over €4bn. If all this is to be believed - then we think the Portuguese government will want to accept Anbang's bid as it achieves a number of objectives for Portugal: a solid committed new owner for Novo, a new entrant in the market, and provides a good amount of money. As a reminder, the resolution fund injected €4.9bn of fresh equity into Novo on its establishment in August 2014, so recouping close to this amount will be a good outcome.[/FONT]
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A sale is a sale - good news [/FONT]
[FONT="]We have limited information on the bidders' intentions, targets, and strategy post the Novo acquisition, but even so, it is difficult to imagine that the government would want to sell such a strategic asset without getting clear commitments from the buyer on re-capitalisation, funding and long-term viability. This provides significant upside for Novo credit fundamentals and near-term bond valuations if a sale is successfully completed, regardless of which of the five remaining bidders end up being successful. Even if Fosun or Apollo ends up taking Novo, we do not see much downside risk now, nor do we realistically foresee a break-up of the bank. We believe that the Resolution fund can provide litigation protection to potential buyers. Other valuation risks (e.g. retail bond holders) will probably also be factored into the offered price.[/FONT]
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100bp plus of upside [/FONT]
[FONT="]We think Novo's fair value post an Anbang deal is inside of 200bp (through BCP and Monte), and is probably not far off where the sovereign trades. Why? These are all weak banks, but Novo will be the only one with a committed owner and a strong capital back-stop.[/FONT]
