Portugal's Millennium bcp withdraws court action against rival Novo Banco

By Sergio Goncalves

LISBON, Sept 10 (Reuters) - Portugal's largest private lender Millennium bcp said on Wednesday it had withdrawn its case from a European court against multi-billion euro injections by the Portuguese Resolution Fund into the capital of its rival Novo Banco.

The resolution fund is the common responsibility of all banks based in Portugal and Millennium bcp is one of its biggest contributors.

Millennium bcp launched the legal action in mid-2018 against a contingent capital mechanism, which was created in October 2017 when the resolution fund sold 75% of Novo Banco to U.S. private equity fund Lone Star, keeping the remaining 25%.

Under the mechanism, meant to keep solvency ratios at Novo Banco at adequate levels required by regulators, the resolution fund must inject up to a maximum of 3.9 billion euros into the capital of the bank, if certain losses occur.

The resolution fund has already injected almost 3 billion euros into Novo Banco, which emerged from the ruins of the collapsed Banco Espirito Santo in 2014.

Millennium bcp said it had decided not to continue the legal proceeding, recognising "that the goal of preserving the stability of the national financial system, especially relevant in the current pandemic, is of crucial importance".

"(There is a) risk that such stability may be affected by a decision by European bodies that indirectly could challenge the sale process of Novo Banco, unlike the position held by Millennium BCP, which has always only challenged the mechanism," its statement said.

The bank "maintains the legitimate expectation" that a new funding model for the Portuguese Resolution Fund will be found.

In the first half of 2020, Novo Banco's consolidated loss worsened nearly 39% year-on-year to around 555 million euros, mainly due to pricey provisions to tackle the coronavirus pandemic and toxic assets inherited from BES. (Reporting by Sergio Goncalves; editing by Philippa Fletcher)