Morningstar DBRS Comments on Dismissal of Novobanco Chief Risk Officer

DBRS Ratings GmbH (Morningstar DBRS) notes that the General and Supervisory Board of Novo Banco, S.A. (Novobanco, or the Bank) dismissed Carlos Jorge Ferreira Brandão as a member of the Executive Board of Directors and as Chief Risk Officer (CRO) on January 7, 2024, following the identification through the Bank's internal processes of suspicious personal financial transactions. Morningstar DBRS does not currently consider the circumstances around the Bank's decision to dismiss its CRO as impacting the Bank's credit ratings.

Morningstar DBRS understands the Bank acted in full coordination and cooperation with all relevant authorities. The Bank discovered the suspicious financial transactions, initiated the investigation, and informed the regulatory and supervisory authorities at the European Central Bank and the Banco de Portugal, and filed a complaint with the public prosecutor.

The suspected issue is not related or associated with the Bank or its operations and does not affect clients' accounts or transactions, the Bank's finances or activity, its commercial operations or risk management system. Consequently, Morningstar DBRS has no reason to consider, at this stage, that novobanco's announcement affects our analysis of the Bank's building blocks, nor are there significant or relevant ESG factors to consider.

Morningstar DBRS will continue to monitor any additional fallout from the incident, including whether novobanco or supervisory authorities eventually deem it necessary for the Bank to make changes to its internal controls. We will also be vigilant to the prospects for a rapid permanent replacement to fill the role of CRO, given the importance of the risk function. Chief Executive Officer Mark Bourke will take over as CRO on an interim basis.

Morningstar DBRS upgraded novobanco to BBB with Stable trend on 25 September 2024 to reflect the Bank's rapidly improved performance across various building blocks, including the Bank's earnings power, risk profile, and capitalization.

For more information on this credit or on this industry, visit the Morningstar DBRS website: https://dbrs.morningstar.com.