Lone Star looks to sell revitalized Portuguese bank Novo Banco, has options

Portugal-based Novo Banco SA's owners are looking to sell the bank, which has transformed from one of Europe's most notorious failed lenders to a company that is more profitable, efficient and well-capitalized than most other large European banks.

Novo Banco was created following the 2014 government bailout of Banco Espirito Santo, which was severely impacted by the global financial crisis and the EU sovereign debt crisis, as well as mismanagement. The Portuguese government stepped in with a €4.9 billion rescue plan that split it into a "bad bank" containing exposures of the fallen Espirito Santo business empire, and a "good bank" named Novo Banco that retained the remaining sound business.

US private equity firm Lone Star purchased a controlling stake in 2017 and began a restructuring plan. Between 2015 and 2024, Novo Banco's return on average equity improved from negative 16.7% to positive 15.8%, its cost-to-income ratio from 85% to 42%, and its common equity Tier 1 ratio from 13.6% to 20.3% — exceeding the average of Europe's large banks on each count. It has also significantly shrunk its nonperforming loans over the same period.

In recent years, profits have been driven by a surge in net interest income, supported by higher central bank interest rates.

Now Novo Banco is preparing to list on the Portuguese stock exchange as early as next month, CEO Mark Bourke told The Wall Street Journal in an interview published May 6. At the same time, it is attracting interest from potential buyers. Spain's CaixaBank SA and France's Groupe BPCE are in the frame, with the former engaged in talks with Lone Star, Bloomberg News reported May 9. Portuguese state-owned Caixa Geral de Depósitos SA has also explored a bid, Bloomberg reported in February. CaixaBank already has a significant presence in Portugal through its local unit, Banco BPI SA.

Novo Banco offers retail and corporate banking in Portugal, where it is the fourth-biggest bank by assets as of 2024-end, and has operations in Spain, Switzerland, Luxembourg and Brazil. Lone Star owns 75% of the bank and the Portuguese state 25%.

The bank has been preparing to float since February as a way to retain its independence following restructuring. It is drafting an IPO prospectus, CEO Mark Bourke told the Journal. Novo Banco has approval from regulators for a capital reduction whereby it would distribute €1.1 billion to investors, after which it could float on the Lisbon stock exchange by the end of June. If market conditions are not suitable, it could float in September, Bourke said.

– Access financial highlights for Novo Banco on S&P Capital IQ Pro. – Access detailed M&A market statistics on S&P Capital IQ Pro.

If it floats, Novo Banco's IPO could be the largest European bank listing in years. The bank could be valued at between €5.5 billion and €7 billion, according to Spanish brokerage JB Capital figures cited by ECO. The largest bank IPO in Europe in the last decade was the €3.84 billion listing of ABN AMRO Bank NV in 2015.

Novo Banco's journey toward stability has followed stabilization in Portugal's economy for more than a decade since the country slumped to a full-blown economic crisis in the wake of the European sovereign debt crisis. The country is now on track for a stable economic recovery with improving finances, and a €10 billion package to help the economy weather the impact of the US tariffs.