The sale of Banif to Santander has however left the Madeira-based institution with debts in excess of two billion euros which will be absorbed by the taxpayer.
The deal will see all of Banif’s customers become Santander customers with immediate effect.
The agreement has also forced the government to work on a revised budget to support the debt of the bank.
The ruling Socialists have also ordered an enquiry to establish the reasons the bank was allowed to deteriorate to the extent it has in recent years.
Earlier, the Bank of Portugal confirmed in a statement that “the impositions of European institutions and the non-viability of Banif’s voluntary sale led to the need for the sale to be carried out.”
The Bank said the solution guarantees the total protection of households and companies’ savings entrusted to Banif, both deposits and senior bonds, as well as the financing of the economy and the continuity of the financial services provided by this institution up until now.
The normal functioning of the services provided so far by the institution will be maintained.
Customers will be able to perform all operations as usual both at the branches and through electronic channels. Banif’s customers will become Banco Santander Totta’s customers and Banif’s branches will become branches of Banco Santander Totta.
The Bank also said the “solution is also the one that best protects the stability of the Portuguese financial system.”
It explained that the operation involved estimated public support to the amount of €2.255 billion intended to cover future contingencies, of which €489 million is to be covered by the Resolution Fund and € 1.766 billion directly by the State, as a result of the options agreed between the Portuguese authorities, European bodies and Banco Santander Totta, to define the parameter of the assets and liabilities to be sold.
Later, the European Commission confirmed it had approved Portuguese plans to provide about €2.25 billion of state aid to cover the funding gap in the resolution of Portuguese bank Banif as in line with EU state aid rules.
The Commission also approved an additional buffer in the form of a state guarantee to cater for potential recent changes of values in the part sold to Banco Santander Totta, bringing the total potential aid measures up to €3 billion.
This follows the Bank of Portugal’s decision to put Banif into resolution on 19 December 2015. It adds to about € 1.1 billion of aid temporarily approved by the Commission in January 2013.
In particular, the Commission found that the additional state aid would facilitate the sale of a large part of Banif’s activities, including its deposits, to a strong purchaser, which will allow the transferred activities to return to long-term viability within the new entity. The aid will also support the orderly wind-down of the remainder of Banif’s impaired assets. All depositors continue to remain fully protected.
Margrethe Vestager, Commissioner in charge of competition policy, said: “Banks cannot be artificially kept in the market using taxpayer money. Banif had already received significant state aid but could not become viable again on its own. The measures approved today now enable Banif’s orderly exit from the market, and for a robust bank to take over a large part of its activities to the benefit of its customers.
“The recently elected Portuguese government had to react swiftly in a difficult situation and I appreciate that a solution was found in cooperation with the Portuguese authorities.”
This followed news that the EC had also approved a prolongation of Portuguese state guarantees on bonds in the nominal amount of €3.5 billion, issued by Portuguese bank Novo Banco.
In particular, the Commission found that the prolongation should contribute to ensuring the maintenance of adequate liquidity for Novo Banco. It also welcomes the year that Portuguese authorities have committed to additional restructuring measures to improve the bank’s viability and efficiency. Both elements should help facilitate the sale process of Novo Banco, which Portugal intends to re-launch in January.