Portugal's central bank chief positive on Novo Banco IPO, urges caution on M&A

By Sergio Goncalves and Andrei Khalip

LISBON (Reuters) - Novo Banco's planned initial public offering would be beneficial for the Portuguese banking sector, Bank of Portugal Governor Mario Centeno said on Wednesday, but he urged a cautious approach to any further acquisitions or consolidation.

Novo Banco was created in 2014 as a result of a government bailout of collapsed Banco Espirito Santo. U.S. fund Lone Star owns a 75% stake, with Portugal's resolution fund and the state holding the rest.

Sources with knowledge of the matter have told Reuters that Lone Star was considering an IPO as well as a full sale of Novo Banco, worth about 5 billion euros ($5.21 billion), which could lead to a merger with another bank operating in Portugal.

"I will see that (IPO) as a good outcome for the functioning and competitiveness of the (Portuguese) banking sector," Centeno told Reuters in an interview. He said it would be very good to see Portugal's fourth-largest bank going public because only one lender in the country, Millennium BCP, is listed.

Portugal's top five banks already control more than 80% of the country's banking assets, but analysts see room for further consolidation.

Centeno said: "The consolidation is one theme that the market again has to dictate". But he urged players to be "cautious and careful" so as not to jeopardise the good results that Portugal's financial system has achieved in recent years in terms of capital, liquidity and cost-to-income.

"We need to understand what each part can achieve and what is the goal because the stability of the sector requires the units that operate in it also need to be stable," he said. He noted that in the past, several M&A moves in the sector had ultimately failed, an experience not worth repeating. He did not give more details.

In June, CEO of state-owned Caixa Geral de Depositos, Paulo Macedo, said his bank, Portugal's largest, was considering "all the hypotheses" to buy another lender to preserve its market leadership in the face of expansion by foreign banks, particularly Spanish banks.

Centeno was more cautious: "Caixa is a very important bank, but that also brings responsibilities. It is a business decision with systemic consequences that must be analysed."

The other major banks in the country include the Portuguese unit of Spain's Santander and Banco BPI, owned by Spain's CaixaBank.

($1 = 0.9599 euros)

(Reporting by Sergio Goncalves and Andrei Khalip. Editing by Jane Merriman)