LISBON (Reuters) - Portuguese Prime Minister Pedro Passos Coelho stood by government policy toward the remains of failed Banco Espirito Santo (BES) BES.LS on Monday, saying a quick sale of its successor Novo Banco was necessary to avoid further risks.
His comments came two days after the rebuilding of Novo Banco was dealt a blow with the resignation of the three men handpicked by the central bank in July to turn it around, amid reports of disagreements over the speed of any disposal.
BES, which had been Portugal's largest listed lender, was the subject of a government-arranged bailout after the collapse of the business empire of its founding Espirito Santo family, whose main holding firms are under court protection.
The bulk of its risky assets, including about 2 billion euros of loans linked to the Espirito Santo family, were left behind in the original bank, but analysts and auditors have warned some losses and liabilities may yet be uncovered at Novo Banco, which took on BES's healthy assets.
Passos Coelho noted the state had poured 4.9 billion euros ($6.3 billion), mostly in public funds, into Novo Banco last month and risked more by lingering with the sale.
"The more time passes before the sale, the greater the risks faced," he told reporters, adding the government wanted the best possible terms for the operation. He did not specify any risks but analysts said a drain on deposits and litigation could undermine the value of the bank.
"The message is clear - accelerate the sale, at least there's some certainty on that now. The new team comes precisely with that mandate," said Albino Oliveira, an analyst at brokerage Fincor. He and other banking sources cautioned, however, that a speedy sale might not generate the most value.
The Bank of Portugal on Sunday named Lloyds Banking Group Plc (LLOY.L) director Eduardo Stock da Cunha as chief executive to replace Vitor Bento, whom it had handpicked to run BES in July, before the state bailout.
The new team also includes three other experienced bankers.
Bento - a respected economist but not a professional banker - said he and his two main executives were leaving because their initial mandate to revive the bank with private money had changed too much since the bailout.
Bento told the bank's clients on Monday they could rely on the bank and would benefit from management changes. "Nothing essential changes and the bank will continue its efforts to serve you with the quality you know, he wrote in a letter.
Asked if he saw any risks in a swift sale, particularly the bank not fetching its fair value needed to repay the rescue loans, Bento told Reuters it was "premature to make such evaluations", leaving it to the new management to answer later.
On whether Novo Banco was stabilized after his stint at the helm, Bento said: "The most we can say now is that the opening balance of the bank is practically ready. It is yet unaudited, but it will allow for a more solid dialogue with various business counterparts of the bank and with rating agencies."
Ciaran Callaghan, an analyst at Dublin-based Merrion Stockbrokers, said: "Ideally from Novo Banco’s s point of view, it would have been better to have a period of management stability until a private sale completes.
"However .. it looks like management were unhappy with the high level of intervention in the bank’s strategy by the government and Bank of Portugal and they felt that they were no longer in a position to add much value."
The reshuffle triggered jitters among investors holding the bank’s senior unsecured bonds. The interest rate they demanded rose by 20 basis points, or 0.2 percent, in the first few hours of trading as the price of the bonds fell.
"There are still lots of open questions about the bank and its value - notably what's going to happen with the Angolan unit," said Oliveira.
Auditors have warned it is yet impossible to quantify the impact from the Angolan state's intervention in BES' Angolan unit BESA, which led to the revoking of a state guarantee issued for up to $5.7 billion, or 70 percent of BESA's loan book.
Novo Banco does not face any risks from the Angolan unit, since BES's stake in BESA was left behind in the original bank. The new bank can get some upside if Angola comes good, however, because it holds a 3 billion euros credit line that was extended to BESA by BES. That credit line was valued at zero when Novo Banco was created, so the bank does not face any downside.
Fernando Faria de Oliveira, head of the Portuguese Banking Association (APB), said there were potential interested parties, but declined to elaborate. He hailed the new Novo Banco management, saying the new team's profiles "match perfectly the goals of maximizing the bank's value and preparing it for sale."
Another banking analyst who did not want to be named said that while the resignations undermined stability, the naming of a new team charged with the sale was generally a good sign.
"They come on a leave of absence from their main jobs, which makes them a task force set up for the sale," said the analyst.
"They (the outgoing executives) had been invited to recover and run the bank and not as a liquidation committee, so it's fair to quit," the analyst said. "I really don't think they left because they discovered any larger holes at the bank - Novo Banco and the central bank just cannot afford the risk of hiding any such findings."
Additional reporting by Laura Noonan, Sergio Goncalves and Aimee Donnellan; Editing by David Holmes