2013 'Swaps' blunder - no case to answer

Paul Rees 24 May 2019

albuquerque1 In 2013, in the midst of the financial crisis, alarm bells sounded when it was discovered that some public companies - such as Carris, Metro de Lisboa, Refer and Metro do Porto - had contracted ‘swaps’ with Santander Totta.

This complex financial instrument, a form of bizarre gamble to cater for possible interest rate rises, backfired badly when interest rates fell to historic lows, costing the companies millions in additional interest payments at upto 200%.

The Deputy Secretary of State for Finance at that time, Ricardo Mourinho Félix, said the sort of interest rates charged by the bank to public companies have reached levels that anyone sane would consider "unacceptable," admitting that "no normal human being thinks it acceptable to pay 200% interest" in any contract and adding that there is nothing that can be done as the contracts have been validated twice in court in London.

These sharp rises had to be renegotiated on a case-by-case basis under Finance Minister, Maria Luis Albuquerque, (pictured).

Albuquerque ordered that interest payments be halted, which caused more pain after the deals were judged valid in a London court and accumulated interest was added back into the amounts owed.

These swaps contracts will continue burden taxpayers until the last one expires in 2027. Mourinho Felix told MPs in July 2017, that there currently was about €500 million interest due from 2013, plus a further €1.3 billion in future interest payments, until the end of the contracts.

The Pedro Passos Coelho government sent off a case file to the Central Department of Investigation and Criminal Action (DCIAP), to see who was to blame and which public official(s) had been so reckless as to enter into these arrangements without the full knowledge of the companies concerned.

This month, the DCIAP closed the process, stating that no crime had been committed.

The Department did say that there had been ‘some lack of prudence in contracting these financial instruments without evaluating all the risks inherent to them.'

So, seven years later, the DCIAP has managed to issue an opinion that shuts down a case file that, even if not criminal, represented a gross error of judgement that cost taxpayers tens of millions of euros with nobody to blame.

António Vieira Monteiro, the chief executive of Santander Totta, was asked in April 2017 if he was comfortable with charging such high interest to Portugal's exhausted taxpayers.

Monteiro replied that this was not his role, "I do not have to be comfortable or not," he said, thus ensuring his name was added to a list of the names of sociopathtic bankers.

Comments

+2 #7 Steven 2019-05-24 16:42

Fault lies with the incompetent public entities who signed the contracts. The banks have no morals and at the end of the day it's legal, they won't give independent advice, up to the entities to ensure that the securities are sound. So many derivative products that would have been low risk and whose purpose is to guard them against this very scenario, don't have to be a financial genius to figure out a better option.

-8 #6 Barb 2019-05-24 15:20

I've been in Portugal five years and still haven't opened a bank account here, zero trust, I'd rather pay a bit extra and keep my money away from the thieves here.

0 #5 Jeff Brown 2019-05-24 11:00

Any body else clock the line that ..... the contracts have been validated twice in court in London. Obviously much of the world looks to the UK courts to deliver unbiased decisions based on the wording in the contract. Unlike so much of the unpredicatble wheeler dealing by the Portuguese courts following the collapse of BES. So emphasis has to be on whoever drafted the contracts and their personal liability. Surely there is a civil crime of "negligence" so allowing the Portuguese taxpayers to go after whoever wrote and also whoever subsequently approved the contracts without getting specialist advice? The bank, having set its penal rates for late or non-payment, was well aware that business circumstances change .. that is the whole purpose of swaps.

+3 #4 Richard 2 2019-05-24 09:36

It is very easy to argue, in hindsight, that the public entities overpaid for interest but the original intent was to provide protection against further increases. Perhaps memories are too short to recall that Portugal was one of the PIGS and like Italy, Greece, and Spain faced prospects of default; hence loans and bonds were far from "investment grade".

It seems that the source of the high payments is that interest rates fell in the subsequent years and the hedge against higher rates worked against them.

I am a very satisfied client of SantanderTotta.

+2 #3 Peter Booker 2019-05-24 08:53

No crime, perhaps. But who was the civil servant, and more important, the politician who allowed these contracts to be negotiated and signed? The word incompetent doesn´t do enough justice to this stupidity.

By looking at the dates on the contracts, the politicians (including Félix) know exactly who was responsible.

+1 #2 CYNIC 2019-05-24 08:15

I closed all my accounts with Santander when another Bank pointed out they were overcharging interest on Property loans and underpaying on deposits, i now have a Bank that i am enjoying an excellent relationship with.

+1 #1 Maximillian 2019-05-24 07:29

The corrupt system doesn't leave space for us - tax payers, which is a shame! The least one can do is to choose to not deal with SantanderTotta. In 2018 I cancelled my account with them after having been their client for 19 years. I am very satisfied with with my new bank, which has way better conditions. At least be more aware and be critical folks!

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