Vítor Bento has been in charge at BES since Monday and a firm hand is needed as subsidiary Rioforte last night missed its repayment deadline of the infamous corporate bond issued to Portugal Telecom, the Financial Times runs an article on the fragility of family controlled bank and the New York Times says that Portugal still has a long road ahead.
Bento is busy this week ‘establishing priorities, regaining confidence in the bank and combatting speculation,’ a job made rather tougher last night as the bank failed to ensure its key creditor, Portugal Telecom, was paid back the €897 million Rioforte corporate bond that due by midnight last night.
Portugal Telecom reported to the market regulator that its current merger with Brazilain mobile operator Oi was still on, but under different criteria as Rioforte, an investment company controlled by the Espírito Santo Group, had failed to pay its debt on time.
As expected and feared by many in government, the deadline came and went with not a cent repaid making PT look the fool and the bank the villain, and Oi standing at the alter now terse and plotting revenge.
PT’s note to the regulator outlined in a new Memorandum of Understanding between PT and Oi, saw the two company bosses stating publically that they "remain committed to complete the merger of their businesses."
What they said privately can only be guessed at but Oi already has removed two of its employees from the PT board in protest at the Rioforte bond issue that nobody thought important enough to mention to the new Brazilian partner.
"The Memorandum was signed following the non-repayment today by Rioforte Investments, a company of the Espírito Santo Group, of €847 million, with interest €897 million, in Rioforte bonds subscribed to by the PT group…”
A weak compromise, and to avoid total default PT has accepted a consideration of shares in Rioforte instead of real money. A week's extension was agreed in case the bank can scrape the money together in addition to a deal involving swapping one bit of paper for another.
This solution will please no one, the deal being made worse by a six year repayment window and the reduced liquidity of PT which really must be asked by its shareholders and the regulator why it saw fit to buy into Espírito Santo Group’s Rioforte in such a big way, tying up 40% of its cash in what has turned out to be a 6-year loan.
The Brazilian Communications Minister, Paulo Bernardo, admitted late on Monday that the National Bank for Economic and Social Development, a shareholder in the PT/Oi merger, could 'review its position' as a partner of Portugal Telecom, taking into account the shockwaves of the crisis in the Espírito Santo Group.
BES shows that Portuguese economy "still has a long way to go" according to the Financial Times today which comments that family-controlled banks are ‘very problematic,’ unless your name is Rothschild.
In the case of Banco Espírito Santo, there is evidence that the Portuguese domestic economy and other European periphery banks still have challenges. This is true as the Banco Espirito Santo meltdown continues to hit the headlines all over the world as the first major story of incompetence, obfustication, money laundering accusations, cronyism and illiquidity since Portugal proudly emerged from the Troika period to find its own way in the international funding markets.
‘Just two months after Portugal proud left its international bailout programme, the financial problems of the country's most important family brought to investors a grim warning of the potential fragility of the Portuguese economy,’ writes the New York Times in seminal article that points out that ‘Portugal still has a long road ahead.’
Despite billions in Troika money up for grabs in 2012 specifically to recapitalise Portugal’s banks, half of it remained on the shelf and now it is clear that BES wanted to avoid any formal state intervention involving probes into its opaque corporate and accounting systems that have proved to be inaccurate on a grand scale.
Eurásia Group’s António Roldán commented to the New York Times, "We are talking about people who had a huge skeleton in the closet and did not ask for capital because they probably were doing everything they could not to have to open their books."
The Financial Times reads that the shareholding structure of Espírito Santo Group before the recent share issue was controlled by the family, but this "is not unique." "In some emerging countries, in parts of Latin America and Asia, banks held by families are the norm." In Europe, despite exceptions, this is not usual. However, the family is losing power.
"The story is still in progress and, ultimately, this may herald the end of a proud dynasty" continues the Financial Times.
The New York Times commented that "the family control may fall further" and despite the much quoted figure of the family owning 20.1% of Espírito Santo Financial Group, 20% of the shares held are in turn held as security against other BES Groups company loans and bonds and look likely to be taken up the true extent of the groups financial distress becomes clear.
"The full story has yet to be revealed, but 'in extremis' this may prove to be a sad end to a proud dynasty" predicts Patrick Jenkins, in his FT column 'Inside Business.’
Still no apology from BES former CEO Ricardo Salgado, who thinks it a good idea that he still should be involved in the management of the financial group after the AGM at the end of July. It appears that sentiment may have turned against him.
