Document Type

Case Study

Case Series

Resolution and Restructuring

JEL Codes

G01, G29


Banco Espírito Santo (BES) was the second-largest private bank in Portugal in 2014, with assets of EUR 80 billion (USD 81 billion). A capital increase of EUR 1.1 billion to the BES was concluded on market terms in June 2014. In July 2014, BES breached minimum capital requirements and reported a EUR 3.6 billion loss owing to improper loans made to the nonfinancial arm of the Espírito Santo (ES) group. The Bank of Portugal (BOP) adopted a resolution measure for BES on August 3, 2014, to safeguard financial stability by protecting all depositors and ensuring continuation of operating activities of the bank. The Portuguese Resolution Fund provided equity capital of EUR 4.9 billion to a bridge bank, Novo Banco, with 100% public ownership and the expectation of sale to private investors in two years. Nearly all assets of the bank, as well as depositors and senior liabilities, were moved to Novo Banco. The legacy bank retained a small portfolio of assets, mostly linked to the ES group, as well as equity, subordinated debt, and ES-linked liabilities. It began its winddown with the setup of Novo Banco and would have its banking license revoked after the sale of the bridge bank. In 2015 and 2016, both Novo Banco and the legacy bad bank continued to report capital losses due to impairment of loans, as the BOP missed its own deadline for the sale of the bridge bank. In 2017, the BOP and the Resolution Fund sold a 75% stake in Novo Banco to Lone Star, a US-based private equity fund, in return for a commitment to inject EUR 1.0 billion of new capital into Novo Banco. The Resolution Fund agreed to provide up to EUR 3.9 billion of additional capital to Novo Banco from the Resolution Fund if the bank’s Tier 1 capital ratio dropped below 12%; as of November 2023, the Resolution Fund had injected EUR 3.4 billion in capital into Novo Banco. The Resolution Fund was backed by public and private loans to be recouped via contributions from the banking sector over a prolonged time span. In February 2023, the European Commission (EC) officially declared the end of the restructuring process of Novo Banco, which meant the end of the EC’s monitoring of the bank. The Government of Portugal and the Resolution Fund provided EUR 7.3 billion of capital injections to Novo Banco between 2014 and 2021 and continues to hold a joint 25% stake in Novo Banco with a book value of EUR 1.1 billion (GOP holds 12% and Resolution Fund holds 13%).