https://online.wsj.com/articles/portugals-novo-banco-management-to-resign-over-mandate-change-1410612301
Lloyds Executive Named to Run Portugal's Novo Banco
Lender Was Formed When Banco Espírito Santo Was Dismantled
The collapse of Banco Espírito has been the biggest in Portugal's history. The Bank of Portugal is trying to prepare the surviving assets for sale.
Mario Cruz/European Pressphoto Agency
Patricia Kowsmann
@kowsmann
Updated Sept. 14, 2014 2:26 pm ET
LISBON—Portugal's central bank on Sunday appointed a Lloyds Banking Group LYG 2.04% executive to run the good bank resulting from the collapse of Banco Espírito Santo SA, following the resignation of the three-person team that had taken over in July.
Eduardo Stock da Cunha, 51 years old and an audit director at Lloyds, will have the difficult task of retaining customers at the bank, called Novo Banco, while it prepares itself for a sale, which Bank of Portugal has said should happen as quickly as possible.
Behind the resignation of the team leading Novo Banco until now was a change in its mandate, according to a statement released by the management Saturday. That team, led by Vitor Bento, had originally taken over Banco Espírito Santo, a bank they thought was in trouble but salvageable with a recapitalization and that could continue as stand-alone institution with a solid shareholder base. Mr. Bento replaced Ricardo Salgado, the patriarch of the Espírito Santo family who had resigned.
Days after Mr. Bento took over, however, the bank reported a surprisingly large first-half loss stemming from its broad exposure to bankrupt companies within the Espírito Santo group.
Days later, the bank was split into a "good bank," called Novo Banco, and a "bad bank." Novo Banco took the deposits, good assets and a capital injection totaling €4.9 billion ($6.34 billion) from a domestic resolution fund run by the Bank of Portugal and the government.
The three officials were assigned to stay at the good bank, which was set to be sold.
In the statement, Mr. Bento, his deputy, José Honório, and Chief Financial Officer João Moreira Rato said that while they were working on a medium-term plan for the lender the Bank of Portugal had initiated a plan for a quick sale.
"We would like to make it clear that we are not leaving as a result of any conflict. Our decision to resign is due to the fact that our mandate significantly changed since we began our roles in mid-July," said the statement, signed by the three officials.
The sale strategy for Novo Banco isn't expected to change under the new management, given the Bank of Portugal is ultimately responsible for it.
In a statement, the central bank reaffirmed its goal is to have "as quickly as possible" a bank with a stable shareholding structure that can guarantee "value creation to the institution, its workers, the financial system and the domestic economy." It said Mr. da Cunha is taking a leave of absence from Lloyds.
Banco Espírito Santo's collapse has been the biggest in Portugal's history.
Its troubles started in May, when it disclosed an audit ordered by the Portuguese central bank found irregularities in the accounts of its parent, Espírito Santo International SA. The conglomerate and some of its units filed for creditor protection in July.
Since then, Portuguese regulators found Banco Espírito Santo's exposure to the parent and units were bigger than expected, triggering a €3.6 billion first-half loss that ate up a considerable part of the lender's capital, spurring its rescue. About €1.3 billion of that loss came from what the Bank of Portugal described as a fraudulent funding scheme between companies within the Espírito Santo empire.
The "bad bank," which is also being run by a team appointed by the Bank of Portugal, received the toxic assets of the lender, including its exposure to souring loans and securities from its troubled parent. Of Novo Banco's €4.9 billion capital injection, €3.9 billion was money lent by the state, while the rest was put in by other domestic banks.
If Novo Banco can't be sold for €4.9 billion, banks contributing to the fund will be forced to assume the losses. To eliminate that uncertainty, some bankers have publicly called for Novo Banco to be sold quickly. The government is also in favor of a speedy solution.
"The faster the bank finds its home and its new owner, the clearer the mission for the management is going to be and the more successful the transition will be," Economy Minister António Pires de Lima said recently.
While no obvious suitors have been appeared yet, Spanish banks and their advisers are in the initial stages of analyzing the possibility of buying Novo Banco. Aside from the geographic and cultural proximity of the two Iberian countries, several of those banks, including Banco Santander SA, already have a presence in Portugal.
Write to Patricia Kowsmann at patricia.kowsmann@wsj.com