The much feared Vampire Squid of legend, Goldman Sachs, is trying to ensure that claims by its Oak Finance investment vehicle in a Portuguese court remain on hold for the time being.
This is at least until a London court decides on whether the $835 million loan (€770 million) made to BES in 2014 is the responsibility of Novo Banco or of the ‘bad bank’ BES.
Oak Finance was the fund created by Goldman Sachs to finance BES in an ill-fated $835 million loan shortly before BES collapsed last August.
Goldman Sachs sold shares in Oak Finance to various institutional investors such as Paul Singer, known as ‘the vulture of Argentina,’ and to the New Zealand government’s pension fund, among others, who have been left high and dry by the Bank of Portugal's change of plan.
When BES went under, the Bank of Portugal transferred the Oak Finance loan to Novo Banco but in December 2014 it switched the loan into the BES ‘bad bank’ accounts, thus losing Oak Finance (Goldman Sachs) hundreds of millions of dollars.
The Bank of Portugal, led by Carlos Costa, argued that there was a good reason for making the switch as Goldman Sachs controlled more than 2% of BES shares and thus the loan fell under different rules. This enabled Costa to saved his newly created Novo Banco having to pay back the loan.
Goldman Sachs and the investors in Oak Finance started the legal action in London to challenge the Bank of Portugal’s decision and to have their money switched back to Novo Banco which is able to repay them.
This certainly will have a disruptive affect on the Novo Banco sale with low offers and calls for state-backed indemnities to be written in to the deal, i.e. if anyone ends up repaying Goldman Sachs, it will be the Portuguese taxpayer.
In response to a request from Goldman Sachs that a London court should decide who owes the money, the Bank of Portugal warned that "this disturbance, at a crucial stage in which we are receiving final offers from potential buyers of Novo Banco, not only would create uncertainty about Novo Banco’s worth but also would subject the buyer to a significant risk of litigation."
This statement shows why the world will heave a sigh of relief when Carlos Costa is replaced.
The uncertainty over who owes the money to Oak Finance clearly has affected Novo Banco’s worth and by hinting at litigation, rather than indemnity, Costa is warning the potential buyers that he is not going to switch the loan back to Novo Banco, and therefore that the successful Novo Banco later might be sued for €770 million by Goldman Sachs - never a pleasant experience.
Last week, the Bank of Portugal reported that five companies are left in the race to buy Novo Banco but did not name them, despite it being common knowledge that Anbang and Fosun from China, Santander, and the 'private equity' groups Apollo and Cerberus all are still in the game.