Goldman Sachs, with its long experience of the relative speeds of various justice systems around the world, has won a vital victory. Its case against Portugal’s Novo Banco for the return of a €760 million syndicated loan made to BES will be heard in a London court.
Goldman Sachs was left reeling last Christmas when, despite promises by the Bank of Portugal’s Carlos Costa that its loan would be transferred to Novo Banco and hence would be repaid in full, Costa changed his mind in one of the most dramatic U-turns seen in Portugal’s financial history.
By keeping the loan among the toxic assets at BES, Costa ensured his shiny new Novo Banco was clear of any inconvenient debts, and that Goldman Sachs and its customers had lost the lot.
Goldman Sachs set up a company, Oak Finance in Luxembourg, to loan BES the €760 million.
Among those funding Oak Finance was New Zealand’s Superannuation Fund (state pension fund) which will be nursing a loss of €142 million if the case is not successful.
All Goldman Sachs' customers who invested in Oak Finance would like the return of their loan which was made just weeks before BES went under.
Carlos Costa’s flippant comment that Goldman Sachs "knew BES was shaky when it made the loan" may come back to haunt him as if Goldman Sachs knew, then the Bank of Portugal would have done too and should have warned institutional and individual investors as to the true situation at Espírito Santo Group.
Novo Banco is under significant pressure to not repay the Oak Finance loan as this will hugely complicate the current sale process for the bank. Chief Executive Stock da Cunha was in London to argue his case but failed to impress at the pre-trial hearing.
Today also is the final, final deadline for bids for Novo Banco and the news earlier this afternoon that the Oak Finance case will be heard in London, hence is likely to be heard this century, will be an embarrassment and irritation to both Novo Banco’s Stock da Cunha and the Bank of Portugal’s governor Carlos Costa who, despite having had his contract renewed for a further five years, may be sacked if the government changes this autumn.
Goldman Sachs is used to getting its own way and is an unloved yet icily efficient part of the world’s financial network.
Even those who do not like Goldman Sachs’ operating style or its ever-spinning moral compass - the nickname ‘great vampire squid’ is a well deserved one – will recognise that this court hearing breakthrough may be of great help to the thousands of individual BES depositors whose money simply disappeared when Carlos Costa waved his magic wand to create Novo Banco last August.
Goldman Sachs’ lawyers presented the reasoning that a case of such political complexity, if heard in Portugal, could be strung out for well over a decade – 16 years was mentioned.
The Bank of Portugal/Novo Banco defence in the case is based on a claim that as Goldman Sachs owned over 2% of BES, it is considered as a different class of institution and is due no compensation. The defence also claimed that the Portuguese courts are the most competent on the matter, a view that the UK legal system's practicioners were certain to disagree with.
Goldman points out that the figures are pretty easy to add up and show it owned 1.6% of BES at the time and can it have its loan repaid please.
The British courts, well used to this type of case and size of client, soon will decide, and the new owner of Novo Banco, Anbang, Fosun or Apollo, will have to pay up.
Comments
And Stock da Cunha ?
It raises the question - if Lloyds UK which he ran when at Santander before Novo Banco, had considered investing in BES products; which side of the fence would Stock da Cunha have been on ?
It is good that this is a US business using a UK court to get a result against 'Planet Portugal'. For too long 'Planet Portugal' has trailed along behind Planet Earth. Pretending to have all the laws and regulations in place and following them. But NOT!
Portugal needs integrating, if necessary by force, into the European Union. Or being kicked out. This half life does no one any good.
Goldman Sachs (GS) does intensive risk analysis with its in house and external 3rd World specialists to protect its reputation. If GS becomes known as a bunch of jokers, not to be trusted with even your parents whelk stall - it loses business. Expensively.
Why - if the culture for years in the higher levels of BES was to conceal what BES was really up to - even from Portugal's own banking regulator and presumably its own BES branch staff - is there any reason to assume that G S intentionally put hundreds of millions of its clients money into a bank it had good knowledge - not suspicion - was in a bad shape?
Nowadays the global risk analysis firms like Moodys, Fitch and Standards and Poor's rightly distrust anything to do with Portuguese banking. Hopelessly un-payable public and private bad loans - the worst in the EU.
It is all a gutter investment and the IMF just the other day told us how it is now and - every day - is getting worse!
But ssshhhh - just a hint!
What percentage of the loan did Goldman Sachs receive as fees both from BES and from its clients?
What percentage of any compensation will Goldman Sachs receive when successful in court?
What percentage of recovered capital is Goldman Sachs due to collect as a fee from its own clients when successful?
Am I suggesting that Goldman Sachs took an unnecessary risk on behalf of its clients. No
I am suggesting that Goldman was assured by the Bank of Portugal that its money was not at risk should BES fold? Yes.
This should come out in the court hearing in London.
These and other questions remain to be answered - I love this job.
Unloved certainly, but not so icily efficient, Ed, or they would have known of the parlous state of BES finances. To what extent will the court say that as a financial institution, the great vampire squid should have known what it was doing? And therefore bear at least some of the responsibility?