Portugal’s government has spent €14 billion of public money on ensuring the banking sector is 'robust' - but much of this money will never be seen again.
The €14 billion is an estimate of the bill from the start of the financial crisis in 2008 but this is about to increase when in September the Bank of Portugal announces the winning bid for Novo Banco. The sum offered for the bank inevitably will be nowhere near the €4.9 billion required for the State at least to break even.
Next, there is the Caixa Geral de Depósitos problem which is about to cost us another €2 billion to €5 billion, depending on whether you believe the government or banking sector analysts.
This overall €14 billion bill, as computed by the Court of Auditors and the National Institute of Statistics, represents nearly 8% of Portuguese GDP, hence Moody’s recent warning that the Portuguese banking system is one of the most fragile in Europe.
The first big hit was the collapse in 2008 of Banco Português de Negócios (BPN) which was conveniently nationalised to prevent €1.8 billion of losses affecting the financial sector. José Oliveira e Costa, the president of BPN between 1997 and early 2008, was arrested on charges of suspected tax fraud, money laundering, forgery, abuse of credit and illegal gains.
The bank was sold on to the Angolan Banco BIC for just €40 million in 2014. The loss to the taxpayer has been in excess of €3.2 billion and is still rising.
No lessons were learned at all during this fiasco and a year later Banco Privado Português (BPP) was declared in default and finally disappeared after Lisbon refused to inject money to be associated with crimes of falsification of accounts and laundering.
On 24 July 2009, Paulo Guichard and Salvador Fezas Vital, two former board members of BPP were suspended by Banco de Portugal, and joined João Rendeiro to be indicted for falsifying accounts, tax crimes and money laundering
The State, through the increasingly hapless management at the Bank of Portugal, granted guarantees before BPP’s insolvency and redemptions so far have seen losses to the taxpayer of another €650 million.
Then there was the big one, Banco Espírito Santo (BES) under the megalomaniac control of Ricardo Salgado. This went bust in August 2014 when it was discovered that the bank has falsified its accounts to hide losses of more than €3.5 billion. This was the bank, that we were assured by the Bank of Portugal's governor Carlos Costa (pictured above), was sound, rubust, solvent, in fact quite a wonderful business - after all, he had been told so by the man in charge.
Novo Banco then was created by the Bank of Portugal using any BES 'good' assets. The State and Portugal’s other banks via the Resolution Fund, stumped up €4.9 billion for Novo Banco’s capitalisation.
Novo Banco has lost money ever since under the dull leadership of Eduardo Stock da Cunha who failed to do much more than turn up for work, but perhaps this was all that was expected.
The first Novo Banco president, Vitor Bento, was 'let go' having spotted early on that a sale of the bank within the stipulated two years would lose the taxpayer billions of euros.
Then last Christmas there was Banif, another bank run by a board so incompetent that any description, however dire, would fail to do its members justice.
The good bits of Banif were sold on to Spain's Banco Santander for a pittance and the Portuguese taxpayer can expect a final bill of around €2.5 billion to support yet another bank that was not regulated, was not monitored and was sold off in a panic.
The canny Banco Santander picked up Banif for just €150 million with an incredible €2 billion in taxpayer-backed guarantees to cover future contingencies.
Finally, there is Caixa Geral de Depósitos which to 2014 has cost the taxpayer €3.2 billion and will cost many billions more as all of a sudden, it needs to be recapitalised at a cost of up to €5 billion.
The Council for Public Finances which reviews the state budget, warned this July that the recapitalisation of the Caixa Geral will have a negative impact on the budget deficit and on public debt and on the compensation payments available for those BES depositors shafted by Ricardo Salgado’s management team in a scandalous fraud.
Throughout this battle scene of crashed banks, crooked directors and eye-watering sums thrown at the various problems ‘so as not to upset the banking sector’ the public has watched with increasing incredulity that few bankers have been brought to account and the overseer of Portugal’s banking system, the Bank of Portugal's governor Carlos Costa, still has a job despite having failed time and time again in his regulatory role: of all the shocks to the system since 2008, this perhaps is the biggest.
Comments
How else to explain the thousands of bank employees who, over the years, went along with the frauds, mismanagement, corrupt deals passing across their desks? The bank documents processed with non-existent ID checks; no signatures - the transfers off-shore. Most serious of all no security being surrendered for the billions in loans that have since, as always intended by the borrower - gone bad.
The bank staff well aware that this is Portugal - who can they complain to and be heard by who is not actually a fully paid up member of the Inner State that has always run this country ?
While I'm not disputing the reckless mismanagement and criminal accounting that's been going on, very few banks, if any, could survive without help in this environment.
Perhaps we need the German banks to open branches in Portugal; after all, that's where the cash went, and that's where it sits.
Perhaps I should have written "finally, for the time being..." as there remain question marks over other Portuguese banks' finances