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Caixa Geral's €4 billion refinancing demand may trigger Portugal's financial collapse

caixageralAs Portugal’s President, Marcelo Rebelo de Sousa, arrives in Berlin for an official two day visit, to persuade Angela Merkel and anyone who will listen that Portugal’s economy is in rude good heath, Spanish newspaper El País has taken a different tack and homed in on the looming disaster at Portugal’s largest bank, Caixa Geral de Depósitos.

Caixa holds nearly a third of all deposits held by Portugal’s tattered banking system but the Spanish reckon the State-owned bank is on the brink of self-destruction following further quarterly losses.

The bank is said to need a cash injection of close to €4 billion to avoid serious problems but the money needs to come from a government well aware that €4 billion is 2.5% of Portugal's GDP and to fund the recapitalisation of the bank will blow a hole in the 2016 national budget, a budget that already is under pressure from the European Commissioners who believe it anyway to be over optimistic.

Portugal's Prime Minister António Costa has confirmed that he is ready to approve the recapitalisation of CGD, although he did not mention the figure he had in mind nor any concern over breaking EU rules surrounding state aid and injecting funds into poorly performing businesses.

A Caxia bail-out would leave Portugal open to a credit rating downgrade which would push up borrowing costs and choke off European aid from quantitative easing.

This is all being played out with a backdrop of possible fines from the EU as Portugal missed last year’s deficit target, due to another bank collapse - Banif, and the call from the Bank of Portugal to create a huge 'bad bank' to transfer Portugal's banking debts to the long-suffering and distinctly fed up taxpayer.

Also there is an impending road crash at Novo Banco which needs to be sold before the end-August deadline for at least €4.9 billion or another loss will need to chalked up on the national accounts score board. There are no declared buyers for Novo Banco, leaving venture capital companies and low bids the likely result of months of roadshows and failed deal-making.

In Brussels, President of the European Commission Jean-Claude Juncker has already had to intervene to delay a 2015 ‘missed target’ fine for Portugal until at least after the June elections in Spain.

El País points out this weekend that Caixa’s problem is that its new leader’s appeal for funds comes just six months after Banif went under which already has cost the Portuguese taxpayer €3 billion with more to come as underwritten loans turn bad.

Caixa certainly is in poor shape and languished under the leadership of José de Matos, who has been moved aside to make way for the former vice president of BPI, António Domingues.

Domingues was due to take over last week until he started making demands over salary levels (he wants double the salary of his predecessor) and called for a €4 billion recapitalisation agreement before he started work.

Domingues wants the €4 billion so as to inject some life into the balance sheet and to fund a huge layoff programme.

There has yet to be a suggestion from management that Caixa will repay the €900 million convertible bond issued in 2008 while the finance minister, Mario Centeno, said repeated his plea, "We want no more surprises."

PM António Costa will have to pull a €4 billion rabbit out of the hat to get away with this one - his toughest challenge yet after six month's at the controls.

When Marcelo de Sousa arrived in Berlin on Sunday evening he admitted that the stability of the Portuguese financial system and its “continuous need for reinforcement” will inevitably "come up for discussion" at Monday’s meeting with Angela Merkel, because Portugal’s parlous financial state "is important for Germany to see resolved."
 
"We can not forget that Germany is currently a very important economic partner for Portugal... so, who's interested in the stability of the financial system Portuguese? Germany," said Portugal’s president, crossing his fingers while vigorously buffing his lucky rabbit’s foot.

 

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Comments  

0 #8 Valdemira Lacerda 2016-07-11 01:06
I would recommend that expats and parents with children living overseas to close their accounts and move them to another bank. I live in the United States but the CGD in NY does not handle person accounts. I have been trying to close my deceased parents bank account with CGD since March, 2015. CGD makes me work through their branch office in Aveiro who is clueless about dealing with heirs. All paperwork requested by them was translated and authenticated by the Portuguese Embassy in D.C. to include the Habilitação de Hedeiros. Took CGD months to let me know that they required 3 witnesses signature not 2 as other banks require. Went back to the Embassy to get another Habilitação de Hedeiros with 3 signatures. The Embassy was rather surprised by the request for 3 witnesses. That was in April and still have heard nothing. Banco BPI received the Habilitação de Hedeiros with the 2 signatures and my money was sent to me within a week. When I call CGD they are always "helping a client" can speak to me and do not return my calls. I have spent over $1,000 getting all the paperwork requested translated and authenticated. Banco BPI did require original documentation but did not require translation. We will all meet our maker someday, take your money out of CGD before you do or your heirs will have a very hard time getting the funds out of this bank.
+3 #7 dw 2016-05-30 19:28
We Brits are not in a great position to lecture about corruption, though you wouldn´t know it from reading comments on here.

Just how corrupt is the UK?
http://www.ianfraser.org/how-corrupt-is-britain/
-1 #6 Jeff Harris 2016-05-30 17:59
Poor Portugésa usefully reminds us foreigners of the anomaly that apparently Portuguese - though primarily the Brazilian variety - is the 6th (?) most spoken language on the planet.

But so much of Portugal's history and its 'real ' values - what it teaches its people and what really matters to it - are locked away from prying eyes. Never to be translated into other languages and least of all .... English !

How many thousands of British in the last 20 years intending to 'effectively occupy' in a fellow EU state Portugal would have killed to get some understanding of the pain still felt today by the Portuguese at the British Ultimatum 1890 to Portugal. To know that '2 way effective occupying' was not possible - only the Portuguese were to be permitted to do so in the UK. Not the British here!

So the British not then wasting their wealth, health and relationships over the years in such a pointless exercise. And hopefully learning now not to think for one instant - that they have met that one honest Portuguese who wants to put right their countrymen's wrongs against them. Who will help make their dream a possibility. Give them hope (for a small fee, perhaps - senhor? For feeding the cats and dogs I have rescued)

Just forget newcomer Brit that you are special - we've all met these types of Portuguese over the years. You have not met that one nugget of gold - all have failed us ! As they will (for a fee) you.
+4 #5 Poor Portugésa 2016-05-30 11:17
Correct, Dierdre!
If you can read Portuguese, you should check out (on Amazon - or in these past columns) Maria João Neves's aposite book "Troika Me!"
It really backs up Ed's and others' comments on our 'historical' system.
+3 #4 Chip 2016-05-30 11:05
Running a bank must be the easiest type of business to create profits. You pay a pittance on borrowings and charge a fortune on loans, with rates cosily arranged in a cartel with other banks.
It's almost impossible to fail unless you spend recklessly on overheads (unnecessary in the online banking age) or you divert funds to managers. I know which one is top of the list - they've run out of brown envelopes at Staples.
+5 #3 Dierdre 2016-05-30 10:23
Out of so many events that illustrate the gulf between the Portuguese and the European Union project is the short lived attempt by the North Europeans to get a grip on Portugal's rampant corruption and cronyism in its Public Sector 2008-2009.

Out of hundreds of Ministries, Departments and Municipals et al questionnaired the Portuguese anti-Corruption Commission reported no usable replies ! A few returned with no more than childish doodles on them. So similar to the result had the Kray and Richardson Gangs in 1960's London been asked for their recommendations on Crime Reduction in their Manors! Total contempt and disbelief that anyone would be expecting them to take an anti-Corruption drive seriously!
+6 #2 Peter Booker 2016-05-30 09:38
"within 100 miles (approx 130 kms)", well I think 100 miles is more like 160 km. Nearly 20% more.

"given their origins in north Africa" is another questionable statement. Some Portuguese have Islamic ancestors, as indeed do some Spaniards. Some of those Moslems came from North Africa, and some from as far away as present-day Nigeria. Some came from the area that is now Syria and Iraq. Many more Portuguese are of Celtiberian and Roman origin.

This questionable statement belongs to cod history.
-1 #1 Derek Potter 2016-05-29 19:57
Portuguese Banks are just one of the more obvious examples that - as often claimed by expats - Portugal was never sufficiently developed to be in the European Union. Given its young age since its alleged 1974 Revolution - it had no history of Regulations of the elite and therefore no concept of Equality before the Law. So, whilst signing whatever law crossed the negotiating table - nothing was implemented.

Portugal also arrived carrying shed loads of baggage from its many decades in Fascist isolation and still ran with a quite surreal 'history' that rarely linked to what actually happened on the dates taught to Portuguese. This made Portugal totally unsuitable to be let within 100 miles (approx 130 kms) of the Union.

With CGD - the State Bank itself - also now going down the drain like so many other Portuguese banks and the consequences of a Brexit (or a near Brexit) just a few weeks away to which the Portuguese have contributed handsomely - who would bet on Portugal still being in the euro in a years time? They have been a total disaster as Europeans ! But then, given their origins in north Africa was this not predictable?

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