Shares in Portuguese bank Banif dropped another 40% today after TVI 24 reported that the government was planning a rescue for the floundering business.
Last Friday there was a surge in the share price when the Madeiran bank’s management announced it was looking for a ‘strategic investor’ to take over the taxpayers’ bloc of shares.
The bank's shares hit an all time low last Thursday amid concerns that the state loans injected during Portugal's debt crisis were unlikely to be paid back.
The government, on behalf of the taxpayer who had no choice in the matter, holds 60.5% of Banif, yet the bank denied today that there were plans for a state rescue and that plans to find an investor to buy the government's shares holding were going ahead, adding that there were several international investors involved.
The bank is a financial basket case and however the government dresses it up, the taxpayers’ money it risked is at grave risk.
Similar to Novo Banco, the taxpayer will be left holding massive losses as the true extent of the bank’s problems become evident.
The government is faced with a time limit as on January 1st, 2016 the loan might have to be written off.
In late 2012, the state injected into Banif €1,100 million of which €700 million was a capital increase and €400 million was in the form of 'contingent capital instruments,' so-called 'CoCos.' So far Banif has managed to pay back just €275 million.
EC rules are tightening up to stop governments doing exactly what Portugal has been doing in its banking sector over the years - as from next year when a bank goes bust, the government is prohibited from risking taxpayers’ cash by simply throwing funds at the problem.
When Banif bank collapses, which may be in the next 24 hours, the government can still throw all the rubbish debts into a ‘bad bank’ and create a ‘good bank’ to later sell off.
The problem is that, as in the case of Novo Banco which rose from the ashes of BES, the good bits will not be worth anywhere near the money the government risked when bailing out the bank in the first place.
The European Commission said today, wary of Portugal’s past behaviour in the banking sector, that any solution for Banif will have to ensure that deposits are guaranteed and that the European rules are followed.
"The Commission is in close and constructive contact with the Portuguese authorities, both at technical and political level. In any case, any solution must respect EU laws and ensure full protection of guaranteed deposits", said the EC competition spokesman, referring to the Bank of Portugal guarantee of deposit accounts held in Portugal's banks of up to €100,000.
One neat escape route for the government would have been to merge Banif with Caixa Geral de Depósitos but this is prohibited as Caixa is undergoing a restructuring which ends at the end of next year as a condition of past state aid.
Several funds have been asked to submit proposals to take the 60.5% of Banif’s shares on offer. The US Apollo fund has been mentioned, but expect rock bottom bids from this and two others said to be in the running.
Banif has "categorically denied" that it is being prepared for intervention and its failed president Jorge Tomé spoke of ‘falsehoods without foundation’ contained in the damaging report on TV.
Comments
If this rolls over into 2016 and the depositors are 'bailed in' this will be the first test anywhere in the EU of the 100,000 euros safety net for savings. The point being that the Portuguese Government's Caixa Geral Depositos and Bank of Portugal need to make good this money. And behind them - the Portuguese Government itself.
PM Tony Costa, having planned to pump 1billion into pubic sector pensions and perks must now steer this towards BANIF. Or Novo Banco which is also scheduled to implode in 2016. And yet keep Portugal staying within 'eyesight' of the deficit level.
A good lesson for all those new arrival EU countries who have been saying "We are not like Portugal". To which we all say - You had better not be! One is quite enough.
But will it be for Portugal ? After 30 wasted years ignoring best practice - yet claiming, as it has done consistently, to be 'good European's ? All this, in any final analysis, was always avoidable if only Portugal had been regulated (i.e. policed) as Europe wrongly assumed over many years that it was being.
Will Portugal have learnt anything or just to 'bury the bone deeper' as it has always done before?