August 7, 2014 / 6:50 PM / in 3 years

UPDATE 1-Portugal central bank chief sees likely IPO for swift "new BES" sale

(Recasts with central banker)

By Andrei Khalip and Sergio Goncalves

LISBON, Aug 7 (Reuters) - Portugal will promote a “swift and transparent” sale via a likely public offering of the healthy lender that was carved out of the troubled Banco Espirito Santo, the country’s central bank chief said on Thursday.

Carlos Costa, who on Sunday unveiled the rescue plan for the lender with an injection of 4.9 billion euros mostly in state funds, said an initial public offering of shares in the new Novo Banco should maximise its value. A sale in one block to one or several investors was likely to be less advantageous, he said.

“By doing an IPO we could have advantages, creating the conditions to add value to the asset and recover the maximum capital,” Bank of Portugal governor told a parliament committee.

The next steps for the country’s bank resolution fund, which formally owns Novo Banco, will be to carry out an audit of its assets and liabilities, hire a financial adviser and then present a swift solution to maximise the value of the bank to be sold to investors, Costa said.

“We understand that there are conditions in place to change the ownership structure by bringing in new investors,” he added.

Earlier, Finance Minister Maria Luis Albuquerque said during another parliament committee hearing the state will loan 3.9 billion euros to the bank resolution fund, 500 million less than initially planned after banks agreed to provide that sum.

“The loan by the Treasury has already come down to 3.9 billion euros after an additional contribution by Portuguese banks,” Maria Luis Albuquerque told the committee.

The head of the Portuguese Banking Association told Reuters on Wednesday banks had proposed to contribute the additional 500 million euros and wanted to work together with the authorities for the swiftest sale of a new, healthy bank to be carved out of the troubled BES.

Under the rescue plan, the “bad bank”, housing BES’s toxic exposures to the crumbling business empire of the bank’s Espirito Santo founding family, will be wound down.

The Bank of Portugal says the bank’s huge losses that led to the rescue were larger than expected because the bank’s previous administration in early July increased exposure to Espirito Santo Group companies in clear violation of central bank orders.

Including contributions by some 80 banks and other financial institutions already accumulated in the fund and pledged by them earlier, their total participation in the rescue plan would rise to around 1 billion euros.

The fund became the formal owner of the new bank, which it has to sell to repay the state. The loan has an incremental interest rate designed to encourage quick repayment.

Albuquerque reiterated that the loan had no risks for the state and taxpayers, “because it will be repaid no matter what happens to Novo Banco, when it is sold and at what price”, he said, ruling out the state taking any stake in the bank.

European Central Bank chief Mario Draghi said earlier on Thursday the Portuguese authorities were “swift and effective” in taking action to prevent BES’s collapse becoming a systemic event and that neither the country’s banking sector nor other markets were affected.

Still, concerns that banks may end up footing part the rescue bill if they do not raise enough money for Novo Banco to repay the state in full have hit their shares this week. The largest listed lender Millennium bcp slumped 15 percent on Wednesday and slipped another 1.3 percent on Thursday.

1 US dollar = 0.7490 euro Reporting by Andrei Khalip; Editing by David Holmes and David Evans

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