ECB tells Portugal’s Novo Banco to fill €1.4bn hole in finances

The European Central Bank has ordered Portugal’s Novo Banco to fill a €1.4bn hole in its finances, possibly delaying its planned sale and hampering Lisbon’s efforts to draw a line under its biggest banking collapse.

The request to repair Novo Banco, created from the failed Banco Espirito Santo (BES), presents a challenge for any anti-austerity, Socialist-led government that could come to power in coming weeks after a parliamentary vote this week.

Of nine banks across the eurozone tested by the ECB as a follow-through on wider checks last year, only Novo Banco was found to be short of capital. It has two weeks to present a plan of action and nine months to plug the gap.

The Bank of Portugal said in a statement that Novo Banco had already started working on a plan to raise capital through asset sales to meet the shortfall.

The central bank failed to sell Novo Banco in September as the bids it received were seen as too low. The result of the ‘stress test’ means the sale can resume.

The Bank of Portugal is in charge of the sale process under the terms of the €4.9bn rescue plan for BES, which was carried out by a bank resolution fund that is formally the responsibility of Portugal’s other banks. The government lent part of the money to the fund and must be repaid.

Reuters