Capital and credit pressures likely to prompt consolidation over the coming year
Portuguese banks have weathered the global financial
crisis relatively well thanks to conservative lending
practices and the absence of a house market boom in
recent years. However, more recently, they have seen a
jump in funding costs and slow credit growth in a
declining economy while some are now struggling to
increase their capital ratios.
The ratings agencies have already downgraded the
number two bank Banco Espírito Santo (BES) and the
smaller Banco Internacional do Funchal (Banif) and put
a further six Portuguese financial institutions on rating
watch negative.
Last October the Portuguese Government was forced
to nationalise Sociedade Lusa de Negócios’ (SLN)
banking arm, Banco Português de Negócios (BPN). BPN
had accumulated losses of €700m and was in danger of
failing to meet payments. The demise of BPN means the
loss of an important source of work for several law firms
including Abreu Advogados, Simmons & Simmons
Rebelo de Sousa and BCS Advogados.
SLN is now fighting to prevent its non-life insurance
asset, Real Seguros, being placed in administration:
options include a share increase, decrease or a sell off. So
far though, only the private Portuguese bank, Montepio
Geral, which has its own insurance company, Lusitania,
has reportedly contemplated making an offer.
Meanwhile, state-owned Caixa Geral de Depositos
(CGD) is fighting a rearguard action to stop it having to
integrate nationalised BPN. CGD, say lawyers, would
rather see a rival bank like Montepio take over BPN´s
213-branch network.
The last Portuguese banking casualty was unlisted
investment bank Banco Privado Português (BPP), which
was forced to suspend payments. It became the first
Portuguese bank to request state guarantees, last
October, as part of the Government's package to support
the sector. The Government was not convinced and
instead six banks agreed to provide a €450m loan, guaranteed separately by the state. However, it was the
subsequent downgrading by Fitch of BPP´s ratings that
effectively sealed its fate. BPP has assets under
management of about €2bn belonging mostly to wealthy
individuals.
Portugal´s largest listed bank, Banco Comercial
Português (BCP), is still working on boosting its Tier 1
ratio to meet the Government´s recommended 8%
threshold. It has plans for a €1.2bn subordinated debt
issue, work that usually goes to either Cuatrecasas,
Gonçalves Pereira or Morais Leitão Galvão Teles, Soares
da Silva & Associados (MLGTS). Similarly Banif and BES
have both recently completed rights issues to boost their
core Tier 1 capital ratios. Banco Santander Totta, part of
Spain´s Grupo Santander, was the only Portuguese bank
to achieve profit growth in 2008.
Lawyers say that consolidation in the Portuguese
banking sector is inevitable. BBVA Portugal's CEO, Jaime
Guardiola, is on record as saying it is well positioned in
terms of capital reserves to make a move. Similarly,
Barclays, currently Portugal´s ninth largest bank, has
also said it is looking at acquisitions in order to become
a top five retail bank. Spain’s La Caixa, which owns a
third of the number four bank, Banco Português de
Investimento (BPI), may reportedly be tempted to sell
out to a buyer wanting to make a full bid.
So, besides ongoing capital markets work, lawyers
may yet be seeing M&A operations too, although once
consolidation is complete there may however be less
banking work to share between fewer firms (see table).
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