As 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.
