BPCE-Novo Banco: Novo riche

A new beginning for Novo Banco. The bridge bank, salvaged from the wreckage of the collapsed Banco Espirito Santo by the Bank of Portugal, is back in European hands, after a decision by US private equity firm Lone Star Funds – which rode to the rescue with emergency financing in 2017 – to cash in on its investment.

The transaction – the largest cross-border banking takeover in the euro zone in the last decade – was carried out in two stages: the acquisition of the 75% of the capital held by Lone Star in August, followed by securing the remaining 25% from the Portuguese government on October 29th, allowing Lisbon to turn the page on one of the darkest chapters in Portuguese banking history.  

Highly prized
With 1.7 million retail customers and a 9% market share in Portugal, Novo Banco is the number four bank in the country, after Caixa Geral de Depósitos, Santander Totta and Millenium BCP. It boasts a 14% market share in the corporate sector and manages a portfolio of €17 billion in corporate loans. It has 4,200 employees in nearly 300 branches.

Created as part of a €4.9bn rescue plan by the Portuguese government to protect deposits and ensure the stability of the nation’s banking system following the 2014 collapse of Banco Espirito Santo, Novo Banco first posted a profit in 2021. It has since gone on to become one of the most profitable banking institutions in Europe, with a cost/income ratio of less than 35%.

With the Portuguese government committed to selling its shiny new asset, Novo Banco did not want for suitors, but in the end BPCE, flushed with cash after registering profits of $3.8 billion for 2024 (up 25% year-on-year) was prepared to meet the asking price. Under its strategic plan, launched in 2024, BPCE aims to become a leader in financial services in Europe by the end of the decade.

The fact that only a small percentage of the fruits of Novo Banco’s successful turnaround are going back into the Portuguese exchequer has been a bitter pill for Lisbon to swallow

After completing the acquisition of Novo Banco in October, BPCE CEO, Nicolas Namias, stated: “By becoming the sole shareholder of Novo Banco, we reaffirm our ambition to foster its growth and enhance its service offerings for individuals and businesses in Portugal. This transaction demonstrates our full commitment to financing the Portuguese economy [and] is part of our strategic plan, 'Vision 2030', underlining our determination to be a key player in the European banking landscape.”

Too big to fail
The clear winner in all this is Texas private equity firm Lone Star Funds, which paid about €1 billion when it acquired 75% of Novo Banco in 2017 (via two capital injections) and eight years on has sold its stake for €6.4 billion.

The fact that only a small percentage of the fruits of Novo Banco’s successful turnaround are going back into the Portuguese exchequer has been a bitter pill for Lisbon to swallow. But after a string of failed attempts to sell it in the mid-2010s (when Novo Banco was making heavy losses) and EU state-aid rules preventing public recapitalization, the Portuguese government was forced to go cap-in-hand to Lone Star in 2017 for an injection of private capital to keep the bank afloat.   

In a June 17th op-ed Filipe Alves, the editor-in-chief of Portuguese daily Diário de Notícias, said the decision to sell Novo Banco to Groupe BPCE was a “viable if far from ideal solution” that would allow Lisbon to draw a line under the Banco Espirito Santo debacle.

In August 2014, Banco Espirito Santo was split into a “good bank” (Novo Banco) and a “bad bank” holding toxic assets, with public funds used to stabilize the country’s banking system. Alves acknowledges that the initial decision to wind up Banco Espirito Santo and use its facilities to rebrand as Novo Banco was highly contested, but argues that the alternatives would have entailed much greater risks and costs for the state.

“There are those who question why it was private investors who reaped the fruits of Novo Banco’s turnaround, when in fact it was the state and the Resolution Fund that bore the costs of that extremely difficult restructuring, with the contingent capital mechanism assuming €3.5 billion in losses from Novo Banco’s problematic assets,” wrote Alves, before adding, “However, in hindsight this process could have ended much worse… Concerning the resolution and the sale to Lone Star, as well as the way Novo Banco was recovered, the alternatives would have been worse.”

BPCE was not the only French banking group to conduct a major cross border M&A deal in 2025. In May Credit Mutuel Alliance Federale announced it was buying buying German lender Oldenburgische Landesbank for around $2 billion.