EU, Portugal agree on
recapitalization for ailing bank CGD
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[August 24, 2016]
BRUSSELS/LISBON (Reuters) - The
European Commission and Portugal have agreed in principle on the
recapitalization, on market terms, of ailing state-owned bank Caixa
Geral de Depositos (CGD), envisaging an injection of 2.7 billion euros
($3 billion) in state funds and a debt issue.
Portugal is still reeling from two bank rescues in 2014 and 2015
that have undermined investor confidence in the country. CGD, its
largest bank by assets, needs to bolster its capital because of
massive bad loans on its books.
The government has been negotiating with Brussels for months so that
any injection is not considered state aid and does not count towards
the budget deficit, which Lisbon has promised to cut to 2.5 percent
of GDP in 2016 from last year's 4.5 percent.
A spokeswoman for the European Commission said the planned
recapitalization would occur on market terms, with sufficiently high
expected returns for the state to mean it would not be considered
The plan is aimed at returning the bank to long-term health through
cost cuts, improved efficiency and de-risking measures, she said.
European Union Competition Commissioner Margrethe Vestager "last
night reached an agreement in principle with the Portuguese
authorities on the way forward to enable a recapitalization of CGD
on market terms," the spokeswoman said.
The plan is yet to be formalized and approved by the College of
Under the terms of the deal, Portugal will inject up to 2.7 billion
euros of capital into CGD, transfer its ParCaixa shares to CGD and
convert 900 million euros of contingent convertible (CoCo) bonds
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European Union flags flutter outside the EU Commission headquarters
in Brussels, Belgium, April 20, 2016. REUTERS/Francois Lenoir
CGD has also committed to raise 1 billion euros of capital through
subordinated debt, which means private investors can help to
increase the bank's equity without becoming shareholders.
CGD last received state funds in 2012 when 1.65 billion euros were injected via
CoCo bonds. Other Portuguese banks that also received state help via CoCos then
have repaid most of the loans to the government.
The bank posted a net loss of 205 million euros in the first half of the year
due to provisions for bad loans. The government in June ordered an independent
audit of CGD, after allegations of irregularities in granting loans.
($1 = 0.8881 euros)
(Reporting by Robert-Jan Bartunek and Andrei Khalip; Editing by Jeremy Gaunt and
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