Novo Banco: a matter of incentives

Like any economic agent, Lone Star plays with the cards at its disposal. Looking back, it is difficult not to question whether the public interest would not have been better defended if Novo Banco had remained in the public sphere.

One of the aspects that surprises most in the periodic collective indignations about the fabulous sums injected at Novo Banco is the indignation shown by those who had an obligation to know that what is happening is the result of the way the institution was resolved and later sold to an entity that, in the jargon of the markets, can be considered - without offense - a “vulture” fund. Who, like any other economic agent, plays with the cards at his disposal.

The Novo Banco is like an old house that the State sold to a private person, at a discount and with the promise of granting him a non-refundable support (financed by a fee paid by the entire neighborhood) to make repairs, if necessary. The buyer already knew beforehand that the walls had infiltrations and that the wooden roof and floor needed to be replaced. But as there was a promise of a non-refundable line, he proceeded with the purchase. Then, he made the repairs with the support of the State and even took the opportunity to replace the window frames, which let in cold, as well as to repair the plumbing and undo the horrible marquee that unraveled the property. However, to pay off the debt he contracted with the bank to buy the house, our investor gradually sold the stuffing. Until a few years later, with the house restored, he managed to sell it to his neighbor at a good price.

With all due differences, this is what Lone Star intends to do at Novo Banco. Putting your house in order and taking full advantage of the conditions that the State has guaranteed you, so that you can sell at a profit. We will see if it will be successful (times are still challenging for banks) and the audit ordered by the Government will say whether or not it went too far, as Rui Rio says, but only by naivety could one expect that a fund would not try to make the most of the money they made available to you.

Looking back, it is difficult not to ask ourselves if it would not have been better to keep the bank in the public sphere, restructure it and sell it when the right time came (or not). In Portugal, we like to say that we are liberal, but true liberalism protects the public interest, as we saw in England with Lloyds, under the leadership of Horta Osório. Nine years after nationalization, the Treasury had already recovered the £ 24 billion it had injected into this bank. In the case of BES / Novo Banco, the bill is already in seven billion, with a tendency to increase.


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