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The national authorities ¬- Government and Banco de Portugal - have decided today the sale of the business of Banif – Banco Internacional do Funchal, S.A. (Banif) and of most of its assets and liabilities to Banco Santander Totta by the amount of € 150 million. The impositions of the European institutions and the unviability of Banif’s voluntary sale led to the need for the sale carried out today to be decided in the context of a resolution tool.
This solution guarantees the total protection of households and companies’ savings entrusted to Banif, both deposits and senior bonds, as well as the financing of the economy and the continuity of the financial services provided by this institution up until now. Thus, the normal functioning of the services provided so far by the institution will be maintained. The customers will be able to perform all operations as usual both at the branches and through electronic channels. Banif’s customers will become Banco Santander Totta’s customers and Banif’s branches will become branches of Banco Santander Totta.
This solution is also the one that best protects the stability of the Portuguese financial system.
This operation involves estimated public support to the amount of € 2,255 million intended to cover future contingencies, of which € 489 million by the Resolution Fund and € 1,766 million directly by the State, as a result of the options agreed between the Portuguese authorities, European bodies and Banco Santander Totta, to define the perimeter of the assets and liabilities to be sold.
I. Background
Banif is the seventh largest Portuguese banking group. In June 2015, its assets totalled € 12,788 million (approximately 7% of GDP) and its deposits totalled € 6,271 million. Banif is the market leader in the Azores and Madeira, with market shares of 37% in deposits and 31% in loans in the Azores and of 36% and 23% in Madeira respectively.
In January 2013 Banif was recapitalised by the Portuguese State in the amount of € 1,100 million (€ 700 million under the form of special shares and € 400 million in hybrid instruments). The recapitalisation plan also included a capital increase by private investors in the amount of € 450 million, which was concluded in June 2014. Since then, Banif reimbursed the State with € 275 million of hybrid instruments, but was not able to reimburse the € 125 million tranche that matured in December 2014.
The public recapitalisation was temporarily approved by the European Commission (DG-COMP), with final approval being subject to the presentation of a restructuring plan for Banif. Between April 2013 and October 2014, Banif submitted to DG-COMP a number of versions of the Restructuring Plan. However, the versions were not approved by DG-COMP, which on 24 July 2015, communicated its decision to open an in-depth investigation process of the State aid to Banif.
In the period following the recapitalisation of Banif with public funds, Banco de Portugal, as the prudential supervisory authority (a competence that since November 2014 has been exercised by the Single Supervisory Mechanism) monitored the institution very closely.
In that period, there were several deviations from the assumptions considered in Banif’s Recapitalisation Plan. In terms of positive deviations, there was a reduction in structure costs and, until the end of 2014, an improvement in the liquidity position with the diversification of funding sources and the stability of the depositors’ base.
However, the absence of an approved restructuring plan, worsened by a less favourable economic environment, led to significant negative deviations of Banif’s results from the projected amounts. In spite of these difficulties, Banif always maintained its prudential ratios above the legal thresholds.
II. Sale and resolution
In the wake of the in-depth investigation procedure opened by the European Commission on the State aid received by Banif, and considering the possibility that this aid could be considered illegal and therefore its reimbursement would be required, the shareholders and members of the Board of Directors of Banif have started the process for the sale of the institution.
On 19 December the Ministry of Finance informed Banco de Portugal that it had not been possible to sell Banif's assets and liabilities through a voluntary sale process, since all the proposals submitted by potential buyers implied additional State aid. This determined that the sale would have to be made in the context of a resolution.
Considering:
- the consequences of the possibility that the State aid to Banif could be declared illegal by the European Commission, which would create a very serious capital shortage;
- the position of the European bodies that the sale of Banif with recourse to State aid would only be viable in the context of a resolution;
- the impact of frustrated expectations related to the voluntary sale on Banif's liquidity situation - which had deteriorated rapidly in the past days - and the resulting risks for the maintenance of its regular payment flows and for meeting its obligations towards the customers;
the national authorities have decided to sell Banif to Banco Santander Totta for the amount of €150 million, in the framework of a resolution tool.
According to this decision, the overall activity of Banif will be transferred to Banco Santander Totta, with the exception of problematic assets which will be transferred to an asset management vehicle. Banif will maintain a very limited set of assets that will be wound up in the future, as well as the shareholders' positions, subordinated credit and related entities.
The adjustments associated with the definition of the perimeter agreed between the Portuguese authorities, European bodies and Banco Santander Totta involve an estimated public support to the amount of € 2,255 million intended to cover future contingencies, of which € 489million by the Resolution Fund and € 1,766 million directly by the State.
Banco de Portugal considers that, in view of the circumstances and restrictions imposed, the sale of Banif's business is the solution that better safeguards the stability of the national financial system and protects households' and companies' savings, as well as the financing to the economy.
Lisbon, 20 December 2015
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