CGD. Capital and restructuring are the biggest challenges of the new management – Mad Money

The new management team of Caixa Geral de Depósitos, which will be led by Antonio Domingues, will take public bank with a number of challenges on the table. The main is on the agenda and the political agenda:. The capitalization of CGD, which can reach 4,000 million euros

Brussels already has the plan designed by the executive and there is urgency of the Portuguese side a decision. The Finance Minister Mario Centeno said the case is still being negotiated but that the recapitalization of public bank has to go through three phases: nomination of the board, changing the conditions of governance and a new action plan.

in other words, the executive will have to implement CGD’s restructuring plan provides that the State is investing to invest a private shareholder, essential condition for the capital injection not considered aid State.

Antonio Domingues, future leader of CGD

Restructuring CGD will have to not only a reduction of the portfolio of assets that do not generate profit but also by reducing costs and adequacy of human resources structure at a time when the banking business model has to change to adapt to the digital .

Margrethe Vestager, the European Commissioner, has already signaled that if the plan capitalization is presented will be approved. “If the state investing as a private would, well that’s great for us and of course, is not State aid, “he told TSF. But the implementation of a restructuring plan, a bank with the size of the CGD, is not simple.

” the first challenge of the new management team of CGD is to ensure economic and financial stability and clarifying the role of the bank in the future, in terms of services provided, influence on the economy and participation in the stabilization of the financial system, “said Filipe Garcia, an analyst with IMF. Henrique Dias, the XTB, states that a major goal is “credit expansion”.

Albino Oliveira, the Patris, agrees that the main challenge is to “improve profitability.” “At an early stage it is necessary to replenish the levels of capital.” It will then be necessary to “implement a restructuring program in order to adjust the cost base to the current framework is expected to remain difficult for the sector.”

to Philip Garcia, this adaptation cost base undergoes reduction structure. “Probably the bank has assets and excess employees.”

The Minister of Finance is also negotiating with Brussels is spending on the capitalization can go to public debt instead of aggravating the deficit this year or It can be divided into two parts (deficit and debt), as reported in the cash. Mario Centeno ensured that there is still no decision, but the goal is that the capitalization has no impact on the deficit.

Emergency capital
public bank needs up to end of the year, more than 600 million euros to increase by 1% core tier one ratio and meet the requirements of the Bank of Portugal, which come into force as early as January. And there is urgency in the approval of the recapitalization plan because Antonio Domingues have imposed as a condition a market capitalization of EUR 4,000 million to assume functions in the bank, although the value has not been officially confirmed. Antonio Domingues will be accompanied by six executive directors and 12 non-executive directors, including Leonor Beleza and Rui Vilar, a total of 19 officers.

In other words, only after passing – or guaranteed approval – the challenge of recapitalization is that the new management team will take office to address the operational challenges. Therefore, the issue has been much political attention

Contacts in favor of capitalization of Caixa Geral de Depósitos have multiplied:. The President, Marcelo Rebelo de Sousa, have approached the issue when he met with German Chancellor Angela Merkel at the end of May. And the prime minister has said repeatedly that the case can not be undermined by having a state shareholder.

CGD also has to return 900 million contingent capital euros (CoCos) until June 2017. Albino Oliveira notes that this value can justify the capitalization of 4,000 million euros.

also the operating point of view all roads lead to capitalization. CGD will have to losses of EUR 74 million that recorded in the first quarter profits at a time when you must meet capital requirements and get some time off to complete the recording of impairments in real estate projects or devaluation of homeowners who received a default credit agreements totaling EUR 1.2 billion.

the bank will continue to sell assets, but should not alienate international holdings in the first quarter contributed to more than 22% of total deposits and over 21% of total loans to customers. “The international area” also deserve attention, believe Albino Oliveira, “” especially Spain, having been implemented a restructuring plan “.

The new bank’s management must aim to reverse the decline in product banking (in the first quarter fell more than 39%). The deposits to customers rose 5.6% in the quarter but there was a reduction in loans to customers, which fell 2.5%, still below the fall in competing banks. On the positive side there is the rise in mortgage loans, which more than doubled, helping to improve the profitability of state-owned bank.

CGD also suffers from the pressure on net interest income due to low interest rates with a strong competitive pressure and regulate on the collection of commissions and also the volatility of international financial markets, which has led investors to take refuge in low-risk assets, at a time that reminds Albino Oliveira, the costs represented 68.2% of operating income in 2015.

in the logic of cost reduction, CGD continues to implement as planned the Horizon plan. Launched in 2015 and with expected completion at the end of this year, the early retirement plan launched by the public bank had more than a thousand applications just in its early stages. This year alone, by the end of April, have already left 103 employees. And the case closed 34 branches.