A British Court has decided that the Portuguese Treasury must pay €1.8 billion to Banco Santander and that the ‘swaps’ contracts agreed between the Spanish bank and some of Portugal’s State-owned public transport companies are valid.
Portugal’s government has appealed time and time again against earlier rulings that the ‘swaps’ contracts were legal, this is the fifth such court hearing, and is to appeal yet again, this time to UK’s Supreme Court despite legal bills already running into the millions.
In 2007, public transport companies in Lisbon and Oporto signed a number of variable interest loans with Santander, having cleared them with government.
In 2013, the Minister of Finance, Maria Luís Albuquerque, decided to stop making loan repayments, referrring to the contracts as ‘abusive,’ as the interest rates payable had rocketed due to the ‘swaps’ terms and conditions.
Santander of course went to court in the UK, a contractual agreement signed by both parties should the deal ever run into trouble.
The government has argued that an overseas court is not competent to settle the matter, despite Portuguese courts already admitting that London is the place for the conflict to be resolved.
The latest judgment from the UK's Court of Appeal confirms what the UK's Court of First Instance decided a few months ago - but the government still insists on a further appeal.
Santander signed nine financial ‘swaps’ contracts, the majority of which later were modified as the Passos Coelho government sensibly negotiated changes.
As for the ‘swaps’ contracts signed with the transport operators, no modifications were reached and Albuquerque simply decided to stop paying the bank.
In the earlier ruling from the Court of First Instance in London, it was stated that transport companies sometimes benefitted and at other times did not, depending on the prevailing interest rate. With the euribor rate falling, as is has done in recent years, the ‘swaps’ contracts became punishingly expensive.
The last thing the government needs right now is to pay €1.8 billion to a Spanish bank so it seems intent on pursuing the claim that the contracts are unfair, despite an earlier government having agreed that they were OK to enter in to.
As the contracts were signed during the last socialist government, that of José Sócrates, the current right-of-centre opposition has wasted no time in hounding the government.
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