Novo Banco CEO sees an IPO as 'Base Case'

When you look at interest rates and actually I guess the divergent we’re seeing between the ECB and the Fed, what does that mean for European banks? I think it’s, it’s almost extraordinary that it looks like the European banks will be the first to experience a reduction in interest rates, which normally we are a lagger, but it seems to us that what will happen is a graduate is decrease in interest rates. We will still in all likelihood remain within a normal band. So interest rates normalized 2 years ago, they will probably decrease by 6-7 individual reductions. But we will still be, we will still be working in a normalized rate. I mean so far so you know you’re a bank Nova Banco, but also other banks have benefited quite not dramatically but I certainly profits have gone up because interest rates have gone up. So is it going to be tougher in in if the if the ECB actually starts cutting in June is it going to be tougher to hold on to those higher profits. But I think we’re an example just like everybody else. So over a period of two years our our profitability increased from the kind of two 300 range up to about 66700 range, 750 for last year. What we have focused on though is making sure that this is sustainable and and we do that through kind of three or four different elements. One was to reduce the sensitivity of our balance sheets and our balance sheet is now significantly reduced. We’ve taken about 75% of the volatility out. So for every 100 basis points, we would lose about 6% of our net interest income. At the same time, we focus on our fee and Commission streams specifically around wealth management and around payments. And lastly, it’s driving efficiency through the cost base. So with all of those we like others would expect to maintain a a sustainable level of profitability through time. So what’s your take on, on the IPO? You’re getting ready, Yes. I mean, so how do you get ready for an IPO? Well, the last time, the last time we were here, I think we were about one, maybe one step in. So the first thing is you’ve got to build a track records. The idea is that to the market you demonstrate you set meets and beat targets over a period of time. So we’re three years in. We now have a sustainable profitable business. We’re very clear about the markets we’re in, the service that we want to maintain and we can show a path of profitability. That’s the first part. So I would say from our results this year, we’re operationally ready as a business. And then the next part is to make sure that the balance sheet is ready. So we have a couple of things we need to do. We need to do some issuance of MRL that will allow us to release excess capital and then essentially we have the balance sheet ready to go. After that, it’s a question of markets, when are the markets ready and selecting the team and going into the marketplace. So what would attract actually an international investor to Novo Bank, call an international investor to know about the, the beauty of us is we are a simple pureplay Portuguese bank. So Portugal as an economy is very attractive. I mean over the last three years, you’ll see that while the EU average in terms of GDP might have been six and then two and each time Portugal is outperforming by a multiple, often two to three times. So stable economy, stable economic backdrop, expectation of that to play out and we are a very simple SME and retail bank in that in that context. So that is why somebody who wants to play Portugal and have a bank as a as a simple way of doing that would take would take the chance. Mark, have you already appointed actually banks to help you prepare for an IPO or is it a little bit too soon. We had no, we have not made any specific appointments. Obviously, we have many, many new friends in the investment banking area and we are obviously designing the balance sheet and getting ready. But we haven’t made the appointments of our lead banks yet. I know, I think that last time you were on with us, you mentioned the dividend block and the fact that that would have to be removed, yes, before an IPO, but but that’s not going to be removed before 2025. At the very latest 2025, it would fall away. But there is and there’s definitely the possibility that we can organize with our shareholders to remove that earlier and that would then allow as I say the issuance of Emerald, the final touches to the balance sheet and then we’re ready to go. So at worst N 25 but anytime between now and then I think we can we can probably reach a an agreement to remove that mark. Can you talk to me a little bit about the possibility of more consolidation between, you know, banks in Portugal, but also maybe cross-border between Portugal and Spain in in the, you know, over over 1015 years. You constantly hear it and it doesn’t matter whether you’re in UK, Ireland, Spain, Portugal markets that this is a market that needs consolidation or that it’s expected and it very rarely happens or it certainly doesn’t happen in the time scale that people expect. So for us we think Portugal is, you know it’s it’s in between the two extremes. So the extremes of an oligopolistic Scandi. Ireland type markets are a fragment massively fragmented German market, you know five banks have 70% of of the banking assets. What’s important is that we compete, endure and succeed in this current configuration. Consolidation takes place, it takes place, but I wouldn’t be expecting anything in the near future, but you wouldn’t, I mean you would. You look at a a possible merger instead of an IPO or is, is you know definitely the IPO. The next thing the IPO is the base case. If something happens or something comes up then you deal with that as it comes up. But the only way you can really plan the bank is to say we need to prepare. We get a prospectus written, we start to educate the potential shareholders, the the, the ultimate shareholders and then if something happens during that process, it happens. Mark, what are you most optimistic about actually at your bank when you look at some of the you know loans, is there a segment that’s doing especially well? I think for us we are becoming very focused on being a very good retail bank. So the the combination of building a an, A customer experience which is better than anybody else in the marketplace, doing so efficiently is, is one side of the equation. The other is what we have always been. We’re an SME bank. So the depth of the relationships, the ability to understand each sector, the ability to actually assist them in their plans has been that is our Heartland, that is our DNA. So being able to do that, being strong enough to do that and to be able to lend and assist them in growing. So as an SME Bank, I think we get back to being what we always were very good at.