Maria Luis Albuquerque answered questions put to her at today’s Budget, Finance and Public Administration committee meeting which centred on an increasingly bleak prognosis for the ailing Espírito Santo Financial Group.
"Public intervention is always a last resort scenario," according to the Minister, who has done little so far to calm international fears for the future of the banking group.
Albuquerque made clear that the BES problem is different to those that were faced by Banif, CGD, BCP and BPI which all received state aid advanced by Europe and the laws have changed too as now any rescue would involve ‘sharing the burden’ by unsecured creditors and depositors.
The Minister's position mirrors that of PM Passos Coelho who earlier ruled out state support for BES Financial Group saying "increasingly, banks look at the merits of projects, and those that don't, pay the price. Companies that look more to friends than competence pay the price, but that price shouldn't be paid by society as a whole, and much less by taxpayers."
State aid to the financial sector, using money from the Troika, was around €6 billion in 2012, much of which now has been repaid. BES did not apply for funding under the scheme as it may not have wished anyone else looking too closely into its accounting practices which latterly revealed gaping holes and over valued assets.
From now on, according to the Minister, if a bank requires government support, "the shareholders and subordinated creditors and holders of convertible securities, are called to share the losses prior to any government intervention," adding ominously, "no deposit, whatever the amount, is safe in these circumstances."
In a series of brisk retorts, Albuquerque summed up her philosophy, "It is up banks to solve their private problems," and that to "speculate on catastrophic scenarios is not healthy."
Albuquerque also made it clear that none of this is her fault, "The Government does not comment on the decisions that the executive committees of banks take on these matters. Supervisors look at decisions, but the government does not interfere," adding that BES is capitalised with a cushion of money that is enough to cope with any losses that may arise from exposure to the Espírito Santo Group in which many subsidiary companies are in deep trouble.
Head of the Socialist opposition, António José Seguro, asked for a "full clarification" about the BES situation so as to avoid "contagion," arguing that the Bank of Portugal and the stock market regulator should give a "public explanation" about exactly what is happening.
Seguro is as much in the dark as much of the financial sector and he asked today for no more surprises in the national banking system as the Portuguese “can not shell out more money.”
"It is necessary for the country to know how we arrived at this situation. What is happening and what has happened over previous years for BES to get into this situation." Seguro also is concerned about the downgrading of the BES rating from two of the top ratings agencies.
Albuquerque seemed to be planning ahead and having told us not to speculate saying that if it all goes pear-shaped, said "investors will be interested in parts of the business," but in the meantime distanced her Ministry from any involvement by saying that the Bank of Portugal is there to supervise, a task it has failed in to date.
Seguro was right about the ratings agencies as Moody's now views the Espírito Santo Financial Group as on the brink of collapse, ranking it one level off default.
According to a statement issued by the agency, the rating assigned to Espírito Santo Financial Group - the holding company through which the Espírito Santo family holds its stake in BES – went down two levels to "highly speculative and is likely in, or very near future to be in default."
The agency says the decision "reflects the growing risk of default for the group, combined with the potential for significant loss to its creditors."
Moody's has many reasons for its pessimism, the first is Rioforte and Espírito Santo International both of which have serious and as yet unquantified financial problems.
The second reason is the "increasingly limited financial flexibility Espírito Santo Financial Group where the family shares already are all in hock and can not be used to raise money for the company.
The trading of shares in Espírito Santo Financial Group is still suspended after a week with no indication of a return to the market.
Meanwhile, we wait for the announcement from the new Chief Executive, Vítor Augusto Brinquete Bento, of a much-needed rescue plan as the city welocomed the announcement of the departure of António Luís Roquette Ricciradi from the board of the Espirito Santo Financial Group, the holding company that owns 20% of BES. The statement was posted on the Securities Commission (CMVM) website.
Lastly, news in today that some minority shareholders in Portugal Telecom are going ahead with a lawsuit against the PT board. The case should be heard next week and was lodged by three shareholders who have seen sharp losses in their holdings.
PT will have to explain the legitimacy of investing nearly €900 million in the now insolvent Espírito Santo Financial Group subsidiary, Rioforte.
