(Reuters) - A Portuguese court has provisionally suspended a central bank decision to transfer some bonds from state-rescued Novo Banco to “bad bank” BES, court documents showed on Thursday, in a step that could complicate the sale of the lender.
(Updates with court documents, central bank response)
The Bank of Portugal rushed to challenge the provisional decision, which it said in a statement would not affect the Novo Banco assets position.
The transfer of bonds ordered by the central bank in late 2015 has prompted a storm of complaints by investors since BES, a “bad bank” holding toxic assets, is being wound down.
“There has been no definitive decision by the court,” the central bank said, adding that it had 10 days to respond to the injunction, which had been issued at the request of Merrill Lynch.
“The Lisbon administrative court provisionally issued a precautionary injunction concerning one series of bonds (PTBENKM0012), without hearing the Bank of Portugal’s position,” it said. “The Bank of Portugal respects the provisional decision, but will immediately request that it be lifted.”
The judge’s decision, however, explicitly told the Bank of Portugal to make the transfer of bonds back to Novo Banco.
“I provisionally decree a precautionary measure determining the transfer of the bonds back to Novo Banco from Banco Espirito Santo (BES),” read the judge’s decision, according to the court document seen by Reuters.
The transfer in December of €1.985bn (US$2.25bn) of bonds had boosted Novo Banco’s balance sheet. The Bank of Portugal is trying to sell Novo Banco after the first attempt to find a buyer and recover billions of euros of rescue funds injected into the lender failed last year.
Two sources in the financial sector said the Bank of Portugal would most likely invoke the so-called public interest clause, which in similar cases in the past has been enough to annul such injunctions.
Portuguese 10-year bond yields reversed earlier declines on the news.
The bond transfer was made to help Novo Banco, which was created from BES in August 2014 after a €4.9 bn rescue, plug a €1.4bn hole that was identified last year in the bank’s capital by the European Central Bank.
An attempt to sell Novo Banco last year failed after bids came in too low. The central bank relaunched the sale process earlier this year.
Reporting Daniel Alvarenga and Andrei Khalip; Additional reporting by Axel Bugge