Frankfurt: The European Central Bank (ECB) has ordered Portugal’s Novo Banco to fill a 1.4 billion euro ($1.5bn) hole in its finances, threatening to delay its planned sale and hampering the country’s efforts to draw a line under its biggest banking collapse.
The request to repair Novo Banco, created out of the country’s biggest bank failure Banco Espirito Santo, 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 euro zone 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.
By providing detailed insight into the bank’s finances, the ECB check helps pave the way for a fresh attempt by the Bank of Portugal to sell Novo Banco. But the political uncertainty in the country and scale of repairs needed at the bank mean any hopes of restarting the sale in coming weeks look out of reach.
In this week’s national elections, left-wing parties ousted Portugal’s ruling centre-right in the first such move against an elected government since the end of dictatorship in 1974, paving the way for a Socialist-led administration.
The prospect of a government backed by the far-left Communists and Left Bloc has already rattled investors, worried that a fragile economic recovery could be derailed in a country that exited an international bailout only last year.
The Bank of Portugal had said it would relaunch the sale effort at the end of the year after uncertainties, such as the capital needed, were known.
An attempt to sell the lender in talks with China’s Fosun International and US fund Apollo collapsed because offers were too low. Earlier, negotiations with China’s Anbang Insurance Group Company, the top bidder, failed.