EU and Portugal agree 5-bn-euro bailout for CGD bank

The European Commission and Portugal said Wednesday they have agreed on a 5-billion-euro deal to recapitalise the state-owned Caixa Geral de Depositos (CGD) bank, including through a 2.7-billion-euro injection of state funds.

The deal was provisionally approved by European Union competition chief Margrethe Vestager to meet the 28-nation bloc's tough rules on preventing unfair government aid for businesses.

Portugal's banks have been under huge stress after the collapse of the country's major lender Banco Espirito Santo in 2014 due to years of risky lending.

"Commissioner Vestager has last night reached an agreement in principle with the Portuguese authorities on the way forward to enable a recapitalisation of CGD on market terms," a European Commission spokeswoman said.

The fact that the deal would be on market terms means it does not qualify as illegal state aid, the spokeswoman said.

Under the deal, the Portuguese government will inject up to 2.7 billion euros ($3.0 billion) of capital into CGD, while the bank itself has promised to raise one billion of capital of subordinated debts.

CGD will also convert into capital between 900 and 960 million euros worth of bonds, received as state aid in 2012.

Additionally, the Portuguese finance ministry said in a statement that it would transfer 500 million euros worth of shares in the state-owned ParCaixa holding company to CGD.

Altogether, the measures amount to a recapitalisation of more than 5 billion euros.

"This is good news for Caixa and for the whole Portuguese banking sector," Finance Minister Mario Centeno told reporters in Lisbon.

The European Commission will now formally take a decision on the agreement.