Novo Banco
Novo Banco, S.A., trading as novobanco, is a Portuguese commercial bank headquartered in Lisbon, established on August 4, 2014, by the Bank of Portugal as a bridge institution to salvage the healthy assets and operations of Banco Espírito Santo (BES) after the latter's near-collapse due to massive losses and governance failures exceeding €3.5 billion in the first half of 2014 alone.[1][2]
As Portugal's fourth-largest lender, it manages €42.4 billion in assets, serves 1.7 million customers, and commands a 9.2% market share as of recent reports.[3]
Majority-owned by U.S. private equity firm Lone Star Funds at 75% since 2017, with the remainder held by Portugal's resolution fund and treasury, the bank has shifted from chronic losses—necessitating over €4 billion in state contingent capital injections through mechanisms like deferred tax assets and guarantees—to profitability, enabling its first dividend payout in early 2025 and explorations of an initial public offering or sale.[4][5][6]
Despite this turnaround, Novo Banco remains emblematic of post-crisis banking resolutions in Europe, where the separation of toxic assets failed to fully insulate the entity from inherited liabilities, resulting in protracted public fiscal support amid debates over resolution efficacy and private equity gains at taxpayer expense.[7]
History
Establishment Following BES Collapse (2014)
On August 3, 2014, the Bank of Portugal (BdP), acting as the national resolution authority, applied a resolution measure to Banco Espírito Santo (BES), which had become insolvent due to accumulated losses exceeding €3.6 billion in the first half of 2014, primarily from non-performing loans and exposures to affiliated entities within the Espírito Santo Group.[8][9] This intervention followed BES's inability to meet liquidity requirements despite €4.5 billion in emergency funding from the BdP since late July, aiming to avert systemic contagion in Portugal's banking sector while adhering to the then-new EU Bank Recovery and Resolution Directive principles of burden-sharing with shareholders and junior creditors before public funds.[10][11] Under the resolution, BES's viable assets and liabilities—valued at approximately €75 billion in deposits, loans, and other performing elements—were transferred to a newly created bridge institution named Novo Banco, leaving impaired assets (including €8.7 billion in potentially toxic exposures) in the residual "bad bank" entity, which retained the BES name and was wound down separately.[9][12] The split protected covered deposits up to €100,000 per accountholder and senior unsecured creditors, with losses first absorbed by BES equity holders (who lost their stakes) and junior debt instruments totaling around €3.9 billion, which were written down or converted.[8][13] Novo Banco was capitalized with €4.9 billion in equity from Portugal's Resolution Fund, a mechanism funded by ex-ante contributions from the banking sector rather than direct taxpayer money, establishing it as a fully state-owned entity under BdP oversight with the mandate to restore stability and prepare for private sector sale.[9][14] Operations commenced seamlessly on the same day, retaining BES's branch network, approximately 7,000 employees, and customer base to minimize disruption, under an interim board led by figures like Vítor Bento as CEO, appointed to implement turnaround measures.[11][9] The BdP emphasized that Novo Banco would operate independently, focusing on prudent risk management and divestment of non-core assets inherited from BES.[8]Early Resolution and Stabilization (2014–2016)
On August 3, 2014, the Bank of Portugal applied a resolution measure to Banco Espírito Santo (BES), transferring the majority of its assets and liabilities—valued at approximately €57 billion in deposits and core operations—to a newly established bridge bank, Novo Banco S.A., while leaving non-performing assets and losses in the residual BES entity.[15][16][11] This action protected all covered depositors and senior creditors of BES, aiming to preserve financial stability amid BES's €3.6 billion first-half loss driven by exposures to related Espírito Santo Group companies.[15] The European Commission later classified the €4.9 billion capital provision to Novo Banco by the Portuguese Resolution Fund as precautionary liquidity and capital support, not constituting state aid requiring clawback, given the pre-BRIC regulation framework.[17] Novo Banco's initial capitalization targeted a Common Equity Tier 1 (CET1) ratio of 8.5% after prudent asset adjustments, funded entirely by the Resolution Fund's €4.9 billion injection into share capital.[16][17] Operations commenced under temporary administration by the Bank of Portugal, with a two-year bridge bank mandate focused on stabilizing the balance sheet through asset sales, cost reductions, and governance reforms, including appointing new management to sever ties with the failed BES leadership.[15][18] By late 2014, Novo Banco reported a CET1 ratio above regulatory minimums, but underlying exposures to Portuguese real estate and Espírito Santo affiliates persisted, necessitating contingency measures like government-guaranteed bank bonds (GGBBs) totaling €3.5 billion to maintain funding access.[19] In 2015, emerging losses—exacerbated by asset writedowns and litigation risks—eroded capital buffers, prompting the Bank of Portugal to bail in senior unsecured debt holders in December, imposing approximately €2 billion in losses on such instruments to absorb deficits without depleting the Resolution Fund's resources further.[20] This marked one of Europe's first senior bail-ins post-crisis, aligning with evolving EU resolution directives, though it triggered market volatility and CDS triggers on Novo Banco.[21] The European Commission approved extensions of state guarantees on the €3.5 billion GGBBs through mid-2016, conditional on no new issuances and ongoing restructuring commitments, to avert liquidity strains.[22][19] By 2016, stabilization efforts intensified with asset disposals exceeding €1 billion and operational streamlining, yet Novo Banco's net losses reached €1.4 billion, highlighting persistent challenges from legacy loans and economic headwinds in Portugal.[15] The bridge status was extended amid failed sale attempts, with the Resolution Fund providing bridge financing while preparing for private sector resolution, culminating in competitive bidding processes deferred into 2017.[23] These measures maintained systemic stability but underscored the limitations of the initial ring-fencing, as uncovered losses continued to require supervisory interventions.[24]Private Equity Involvement and Turnaround (2017–2024)
In October 2017, U.S.-based private equity firm Lone Star Funds acquired a 75% stake in Novo Banco as part of a European Commission-approved restructuring plan following the bank's earlier resolution measures.[25] The transaction included Lone Star's commitment to inject €1 billion in capital and implement deep operational and balance sheet reforms, while the Portuguese Resolution Fund retained the remaining 25% ownership and provided contingent capital support up to €3.89 billion to cover potential losses on legacy assets.[25] This marked a shift from state-led stabilization to private sector-driven recovery, with Lone Star assuming control to address persistent challenges from inherited non-performing exposures. Under Lone Star's stewardship, Novo Banco executed a multi-year turnaround strategy focused on de-risking, cost discipline, and refocusing on core domestic operations. Key initiatives included the sale or closure of international subsidiaries, offloading non-core assets, and aggressive management of impaired loans, which reduced the non-performing loan ratio from 32% at end-2017 to 4.4% by end-2023.[26] The bank streamlined its operations to prioritize retail and corporate banking in Portugal, achieving operational efficiencies that lowered the cost-to-income ratio and improved funding diversification, with the loans-to-deposits ratio stabilizing around 87% by late 2024.[27] These efforts were complemented by regulatory approvals for balance sheet adjustments, enabling capital optimization and positioning the institution for sustainable profitability. Financial performance rebounded markedly during this period, with return on average equity rising from -16.7% in 2015 (pre-Lone Star baseline) to 15.8% by 2024, reflecting disciplined execution against strategic targets.[27] Net interest income reached €1,179.4 million in 2024, supporting a record net profit of €744.6 million and a return on tangible equity of 17.4%.[28] The bank secured an investment-grade credit rating, underscoring enhanced creditworthiness amid Portugal's economic recovery.[29] By 2024, these transformations had established Novo Banco as a competitive player in the Portuguese market, with net customer loans growing to €24.3 billion earlier in the period through targeted expansion in mortgages, consumer loans, and corporate segments.[30]Ownership and Governance
Evolution of Ownership Structure
Novo Banco was created on August 3, 2014, through the resolution of Banco Espírito Santo (BES), with its initial share capital of €3.845 billion fully owned by Portugal's Resolution Fund, a state-backed entity administered by the Banco de Portugal and financed by contributions from the banking sector. This structure aimed to isolate viable assets from BES's non-performing exposures while minimizing immediate fiscal costs, though it relied on future bank levies to recapitalize the fund. In June 2017, following a relaunch of the sale process in January 2016 and approval by the European Commission, U.S. private equity firm Lone Star Funds acquired a 75% stake via its vehicle Nani Holdings S.G.P.S. for a €1 billion capital injection, with the Resolution Fund retaining the remaining 25%.[31] This transaction imposed 33 behavioral commitments on Novo Banco under EU state aid rules, including asset sales and cost reductions, while providing Lone Star with potential upside from deferred contingent capital mechanisms tied to performance. Post-acquisition, the ownership of state-linked entities evolved through multiple share capital increases, primarily to recognize deferred tax assets (DTAs) and fulfill regulatory requirements, diluting relative stakes while maintaining aggregate public holdings near 25%. By late 2021, the Resolution Fund's stake stood at 24.61% and the Directorate-General of the Treasury and Finance (DGTF, representing the Portuguese state) at 1.56%, with Lone Star at approximately 74%.[15] By December 31, 2023, following further issuances—including one in June 2024 that adjusted stakes via DTA conversions—the structure stabilized at 75% Lone Star, 13.04% Resolution Fund, and 11.96% DGTF. These changes reflected injections of approximately €3.1 billion in public funds since 2014 to cover legacy liabilities, funded indirectly by bank sector contributions rather than direct taxpayer outlays.[15] On June 13, 2025, Lone Star agreed to sell its 75% stake to France's BPCE Group for a cash consideration valuing 100% of Novo Banco at €6.4 billion, subject to regulatory approvals including from the European Central Bank and Portuguese authorities; BPCE simultaneously pursued acquisition of the remaining ~25% from the Resolution Fund and DGTF on equivalent terms, with closing anticipated in the first half of 2026.[32][33] As of October 2025, the transaction remained pending, preserving the prior structure amid Novo Banco's ongoing profitability and capital strength.[34]Current Governance Model
Novo Banco employs a dual-board governance structure, comprising a General and Supervisory Board (GSB) and an Executive Board of Directors (EBD), implemented on 18 October 2017 following a restructuring of its shareholder base. This model aligns with international best practices for banking supervision and management, emphasizing separation between oversight and executive functions. The GSB acts as the primary supervisory organ, tasked with monitoring the EBD's activities, ensuring effective risk management, regulatory compliance, and internal controls, while providing strategic guidance. It convenes monthly or as required and is supported by five specialized committees: Financial Affairs, Risk, Compliance, Nomination, and Remuneration. GSB members, numbering between 8 and 12, are elected by the General Shareholders' Meeting for a four-year term.[35][36] For the 2025–2028 mandate, the GSB is chaired by Byron James Macbean Haynes, with Karl-Gerhard Eick as vice-chairman; other members include Kambiz Nourbakhsh, Mark Andrew Coker, Evgeniy Kazarez, Carla Antunes da Silva, William Henry Newton, Monika Wildner, and Susana Smith, all subject to regulatory fit-and-proper approvals.[35][36] The EBD handles operational execution, including policy formulation, strategic implementation, and business oversight, with accountability to the GSB. It is supported by internal committees and three sub-committees focused on non-performing assets, model risk, and non-financial risks. EBD members are appointed by the GSB, with the chief executive officer selected directly by the board. The current EBD, serving the 2022–2025 term, is led by CEO Mark Bourke and includes Benjamin Dickgiesser (CFO), Luís Ribeiro (CCOC), João Paixão Moreira (CCOR), Rui Fontes (CCO), Patrícia Afonso Fonseca (CLCSO, pending fit-and-proper approval), and Carmen Garcia Gonçalves (CRO).[35][36] This governance framework reflects Novo Banco's status as a resolution entity, with shareholder elections influencing GSB composition amid ongoing agreements between major stakeholders—currently Lone Star Funds (75% stake) and the Portuguese Resolution Fund (25% stake)—though a memorandum of understanding signed on 13 June 2025 contemplates BPCE acquiring the majority stake, with closing anticipated in the first half of 2026 and no immediate alterations to the board structure.[37][38] External auditing is conducted by Ernst & Young, Audit & Associados – SROC, S.A., ensuring independent verification of financial reporting and governance adherence.[36]State Involvement and Resolution Fund Role
The resolution of Banco Espírito Santo (BES) on August 3, 2014, by the Bank of Portugal involved transferring approximately €75 billion in assets and liabilities to the newly created Novo Banco, with the Portuguese Resolution Fund (Fundo de Resolução) assuming initial ownership to facilitate the bridge bank's stabilization and prevent broader systemic contagion.[8][39] This measure was supported by state aid approved by the European Commission on August 4, 2014, which included provisions for the transfer of certain impaired assets and liabilities, ensuring compliance with EU banking resolution rules while minimizing direct fiscal burden through the Resolution Fund's bank-financed resources.[40][25] The Resolution Fund, established under Portuguese law and funded primarily through ex-ante and ex-post contributions from the banking sector, played a central role in Novo Banco's post-resolution support, injecting capital and absorbing losses as per the bail-in hierarchy.[16] During the 2017 sale of 100% of Novo Banco to Lone Star Funds, the Fund entered into a Contingent Capital Agreement (CCA I), committing up to €3.89 billion in deferred capital injections triggered by shortfalls in capital ratios or asset quality metrics, with the Portuguese state providing guarantees on related deferred tax assets to mitigate fiscal risks.[17][41] This structure, approved as compatible state aid by the European Commission, preserved the Fund's role as a backstop while transferring operational control to private equity.[25] Subsequent interventions underscored ongoing state and Fund entanglement. In 2021–2023, the Resolution Fund disbursed approximately €1.6 billion under CCA mechanisms due to elevated non-performing exposures and regulatory capital pressures, financed partly through borrowings from banking syndicates.[42] By June 2024, following a €350 million capital increase, the Fund's stake rose to 13.54%, alongside the Portuguese state's direct holding of 11.46% via the Direcção-Geral do Tesouro e Finanças, reflecting diluted private ownership amid recurrent support needs.[43] In January 2025, agreements allowed profit-sharing on dividends, with the Fund and state positioned to receive portions of up to €1.3 billion from Novo Banco's first payouts, contingent on performance thresholds, highlighting the hybrid public-private framework's persistence.[44][45]Business Operations
Core Banking Services
Novo Banco's core banking services are centered on domestic retail, small and medium-sized enterprise (SME), and corporate banking within Portugal, delivered through a network of approximately 290 branches and 20 corporate centers, supplemented by digital channels. These services encompass deposit-taking, lending, and payment processing, supporting 1.7 million customers with a focus on commercial activities rather than international expansion.[46][47] In retail banking, the institution provides current and savings accounts for deposit management, mortgage loans, consumer credit, overdrafts, and online credit facilities. Payment-related offerings include credit and debit cards, restaurant vouchers, and digital payment solutions, alongside ancillary products such as car leasing, renting, and insurance distribution. These services contribute to Novo Banco's approximately 9% market share in deposits and 10% in loans as of December 2024.[46][47] For corporate and SME clients, core services emphasize financing and cash management, including medium- and long-term credit lines, trade finance instruments such as documentary credits, factoring, confirming, forfaiting, and international remittances. Treasury management, external financing support, and payment solutions like point-of-sale (POS) terminals and NB Express Cash further enable business operations, with specialized teams assisting in European funds access (e.g., PRR and PT2020) and export/import activities. This segment drives loan portfolio growth, reflecting Novo Banco's market-leading position in corporate lending.[46]Expansion and Strategic Initiatives
Novo Banco's strategic plan emphasizes four core pillars: establishing a customer-centric model, enhancing operational simplicity and efficiency, fostering people and culture development, and pursuing sustainable performance. This framework guides initiatives to improve credit decision quality through automation, leverage digital and omnichannel channels for service excellence, and align with evolving customer expectations via distinctive value propositions.[48] A key focus has been digital transformation to drive growth and personalization. The bank has deployed over 50 AI models to enable smarter customer experiences, supported by partnerships such as with Quantexa and Microsoft to build an AI-ready data foundation that streamlines operations and supports innovation. This has resulted in continuous expansion of its digital customer base, defined as active users in digital channels, alongside investments in reinventing key customer journeys for excellence and cost efficiency.[49][50][51][52] Sustainability initiatives form another strategic dimension, with commitments to environmental, social, and governance (ESG) goals through 2026 and 2030, including carbon reduction aligned with a low-carbon economy transition. In green financing, Novo Banco disbursed €369 million in 2023, exceeding its 2024 targets ahead of schedule, and reached €700 million in 2024 for SMEs and large corporates, surpassing projections. These efforts integrate with broader ESG guiding principles, such as the Social Dividend Model commitments achieved by 2024.[53][54][55][56] In June 2025, a pivotal strategic development occurred with Groupe BPCE's agreement to acquire a 75% stake from Lone Star Funds, marking a shift toward enhanced growth resources and operational capacity in the Portuguese market. Novo Banco's CEO stated the transaction would enable expansion of presence amid its "Vision 2030" plan, while BPCE views it as advancing cross-border diversification. This follows prior investments in scalable retail franchising and transformation, with first-half 2025 efforts accelerating customer journey improvements. Operational partnerships, such as selecting Euroclear FundsPlace in September 2025 for exclusive fund distribution, further aim to boost efficiency.[57][34][33][58][59][60]Financial Performance
Historical Financial Trajectory
Novo Banco was established on August 4, 2014, as a bridge bank following the resolution of Banco Espírito Santo (BES) by Banco de Portugal, with viable assets and operations transferred from BES while non-performing assets remained in the resolved entity.[31] The bank received an initial equity injection of €4.9 billion from Portugal's Resolution Fund to ensure operational continuity and meet capital requirements under the Bridge Bank framework.[61] Despite this, integration challenges and legacy exposures from BES led to immediate financial strain, with the bank posting operational losses in its formative phase amid restructuring efforts to stabilize deposits and lending activities.[62] From 2015 to 2017, Novo Banco incurred substantial net losses, totaling approximately €1.4 billion in 2015, escalating to €1.4 billion in 2016, and €797 million in 2017, driven by high provisions for loan impairments, litigation costs from BES-era contingent liabilities, and elevated operating expenses during deleveraging.[27] These shortfalls necessitated additional contingent capital injections from the Resolution Fund, including mechanisms tied to solvency thresholds, as the bank grappled with a return on equity as low as -16.7% in 2015.[27] In March 2017, U.S. private equity firm Lone Star Funds acquired a 75% stake for a €1 billion capital infusion, with the Resolution Fund retaining 25%, aiming to support turnaround via cost reductions and asset sales; however, deferred compensation clauses in the sale agreement triggered further injections exceeding €3 billion cumulatively through 2021 to cover shortfalls from legacy risks.[63][15] Post-2017, financial performance began stabilizing under Lone Star's oversight, with cost-to-income ratios improving from over 85% in early years through branch closures, staff reductions, and digital investments, though 2018 saw a record loss remedied by an €825 million injection under contingency terms.[64] By 2021, the bank achieved its first net profit of €185 million, reflecting revenue growth from core banking and reduced risk costs, followed by €561 million in 2022 amid economic recovery and higher interest margins.[65][66] This trajectory marked a shift from dependency on public recapitalizations—totaling over €8 billion since inception—to sustainable profitability, underpinned by prudent risk management and market positioning in Portugal's banking sector.[15]Recent Results and Metrics (2023–2025)
In 2023, Novo Banco achieved a net profit of €743 million, reflecting robust commercial banking income of €1,439 million, primarily driven by elevated net interest income amid higher interest rates. The bank's cost-to-income ratio remained efficient at approximately 32%, supported by controlled operating expenses, while net impairments and provisions were managed effectively, contributing to a return on tangible equity (RoTE) exceeding 30%. Customer loans stood at around €27 billion, with deposits growing steadily, maintaining a loans-to-deposits ratio below 90%. For 2024, net profit edged higher to €744.6 million, a marginal 0.2% increase year-over-year, bolstered by net interest income of €1.179 billion (up 3.2%) despite moderating rate pressures, and fees and commissions that continued to expand.[67] [68] Net impairments and provisions rose slightly to €188.4 million, reflecting a customer credit cost of risk at 33 basis points, while the net non-performing loan (NPL) ratio improved to 0.1%. Total assets reached €45.0 billion, with gross customer credit at approximately €29 billion and a loans-to-deposits ratio of 87% as of September.[69] [70] The CET1 ratio remained strong above 15%, underscoring capital resilience.[71] Through the first half of 2025, Novo Banco posted a net profit of €434.9 million, a 17.4% rise from the prior-year period, fueled by 11% year-over-year growth in fee income from increased transaction volumes and customer base expansion, offsetting softer net interest margins due to ECB rate cuts.[34] Net impairments and provisions dropped sharply to €11.1 million, reflecting improved asset quality with gross customer credit at €29.4 billion (up 3.9% year-over-year). Liquidity metrics stayed solid, with a liquidity coverage ratio (LCR) exceeding 190% and net stable funding ratio (NSFR) above 120%.[72]| Metric | 2023 | 2024 | H1 2025 |
|---|---|---|---|
| Net Profit (€ million) | 743 | 744.6 | 434.9 |
| Net Interest Income (€ million) | ~1,200 (est. from commercial) | 1,179 | Not specified |
| Total Assets (€ billion) | ~44 (est.) | 45.0 | Not specified |
| Gross Customer Credit (€ billion) | ~27 | ~29 | 29.4 |
| Cost-to-Income Ratio (%) | 32 | <35 (target) | Not specified |
| Net NPL Ratio (%) | ~0.7 (end-year) | 0.1 | Not specified |