EU, Portugal Reach Agreement on Plan to Recapitalize Lender
August 24 2016 - 11:10AM
Dow Jones News
The European Union and Portugal have reached an initial
agreement to inject billions of euros into Portugal's largest
lender by assets, an important step toward cleaning up the
country's troubled banking sector.
Portugal will inject up to €2.7 billion ($3.05 billion) into
state-owned Caixa Geral de Depositos SA, according to the state's
finance ministry and a spokeswoman for the European Commission, the
EU's executive branch. Caixa Geral has committed to selling €1
billion in subordinated debt to private investors. Portugal will
also transfer its shares in a subsidiary of Caixa Geral called
ParCaixa to the bank and convert about €900 million of contingent
convertible bonds, known as Cocos, into equity.
Portugal's capital injection into Caixa Geral won't be
considered state aid, the Commission spokeswoman said. Portugal has
a debt load of around 130% of economic output and is also trying to
whittle down its budget deficit to meet EU targets.
"The Commission's analysis is that the recapitalization takes
place on market terms, since the expected return for the state is
sufficiently high and are in line with what a private investor
would have accepted," the spokeswoman said. The initial agreement
needs to be formally approved by all members of the Commission.
The deal provides Caixa Geral with more funds to clean up soured
loans. EU and Portuguese authorities hope that will allow the bank
to shift its focus to lending more to Portuguese companies. The
plan also includes cost-cutting measures and improved corporate
governance rules.
Caixa Geral was one of the Portuguese banks that received a
capital injection from the state in 2012 under Portugal's €78
billion bailout program with international lenders. However, with
the economy still struggling t he government decided another
recapitalization was needed.
The lender has 8,370 employees and more than 1,200 branches. It
is present in 23 countries, including Angola, Mozambique and
Brazil.
Natalia Drozdiak in Brussels contributed to this article
Write to Jeannette Neumann at jeannette.neumann@wsj.com and
Patricia Kowsmann at patricia.kowsmann@wsj.com
(END) Dow Jones Newswires
August 24, 2016 11:55 ET (15:55 GMT)
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