The Bank of Portugal today thought it politic to issue a statement about the financial state of Espirito Santo Financial Group, owner of high street bank BES.
Despite the discredited group losing nearly half its value in the past six months Portugal’s central bank today said that its subsidiary Banco Espírito Santo (BES) was in a state of “solid solvency, which has been strengthened by the recent capital increase,” adding that it is closely monitoring the situation in the bank.
"The solvency situation of BES is solid and has been significantly enhanced with the recent increase in capital,' reads a statement sent to media.
"The Bank of Portugal has adopted a set of supervisory actions, translated into specific orders addressed to Espírito Santo Financial Group and to BES, to avoid risks of contagion of the bank resulting from the non-financial sector of of Espirito Santo Financial Group," according the supervisory team led by Carlos Costa.
The supervisor however did cover its position by adding that the financial group did have businesses other than in banking and that the Bank of Portugal was not in charge of regulating these. One is the insurer Tranquilidade which has been put up for sale.
“The Bank of Portugal has the responsibility to oversee only the financial part of Espírito Santo Financial Group,” according to the banking regulator, specifying that this includes Espírito Santo Financial Group that until the last capital increase of BES on June 16th, held the majority of shares in the bank BES.
In a surprising cop-out the regulator thus partly has distanced itself from any problems caused by Espírito Santo Financial Group’s subsidiaries that might affect the parent.
At least the Bank of Portugal has made some comments, following those of the Finance Minister who assured the market earlier this week that she wasn’t concerned about the banking group’s financial health - surprising perhaps, as the run in its shares and the involvement of Portugal Telecom in a perhaps foolhardy €900 million bond purchase by an Espírito Santo Financial Group offshoot has caused ructions in the financial sector.
In Bank of Portugal’s favour it will be privy to a restructuring of the Espírito Santo Financial Group and may be confident that the bank, no longer controlled by the descendants of the founding fathers, can be put straight.
Ricardo Salgado, the bank’s chief who rightly is getting the blame for the bank’s current position, will leave on July 31st after the Annual General Meeting where his successor will be announced.
The Bank of Portugal is involving itself in succession planning despite the official stance that this is up to the shareholders and directors, as the choice of Salgado's replacement will have to be from outside 'the family.' An 'independent professional' is being sought and the city is alive with rumours as to who will take up the challenge.
Officially the Banlk of Portugal remains distanced from personnel matters, as can be seen in its press release of June 20th 2014:
"With regard to appointments to the management and supervisory bodies, Banco de Portugal awaits the decision of the General Meeting of shareholders of Banco Espírito Santo, S.A. to assess each designated individual's fulfilment of the requirements needed for the role, laid down in the legislation in force, namely Articles 30 and 31 of the Legal Framework of Credit Institutions and Financial Companies.
"Banco de Portugal is also waiting to assess the internal governance model, once it has been approved at the General Meeting."
Questions will remain over the bank’s role in the Ferrostaal submarine case with the channelling of funds to BES directors’ accounts in the Cayman Islands, and the long-running Monte Branco money laundering case.
It also is claimed, with documantary and witness statements, that Ricardo Salgado as the Chief Executive of BES bought about 2 million shares in electricity supplier EDP at key moments during its privatisation between October and December 2011. Salgado used an offshore company located in Panama.
This has been uncovered as prosecutor Jorge Rosario Teixeira continues his investigation into tax fraud, money laundering, insider trading, influence peddling and corruption in the privatisation of EDP as part of the Monte Branco investigation.
As adviser to EDP, Salgado was able to buy at a price which he knew would rise as he was privy to the bids coming in for EDP.
Using an offshore company indicates a desire to hide this transaction which by any standards of banking probity is a serious case of insider trading.
Salgado’s career is over, his reputation in tatters and the restructuring of his legacy soon will begin.
