BES non-exec directors chosen for their stupidity

Nuno Godinho Matos, a former non-executive director of Banco Espírito Santo, admitted today that he did not know what was going on at BES up until its emergency bailout by the Bank of Portugal.

Matos said that the non-executive directors "had nothing to do with the daily life of the bank."

As for board meetings, normally designed to steer a business through the recession and develop strategy to protect shareholders and investors from threats to the core business, Matos said the he went in without saying a word and left, having not said a word.

This went on for six years but Matos claims that he was not alone, none of the non-execs said anything that might question the authority of chief executive and grandson of the founder, Ricardo Salgado, happy as they were to receive their handsome stipends.

Being a lawyer, Matos pointed the finger of blame far from his own mirror, in this instance he blames the lack of external supervision, and said that there had been a "total failure" by the Bank of Portugal, the market regulator CMVM and the auditors who never spotted what was wrong.

How Matos passed his bar exams remains a mystery as his total lack of appreciation of the role of non-executive director goes some way to explain how BES went bust.

Matos has around €100,000 blocked in the BES "bad bank" and wants it back, claiming that it is money from the sale of a family home, and some savings.

Matos does understand that "the main victims will still be the people who bought into the last capital increase, because that paper today is worth nothing, it’s wrapping paper" he said.

Asked about the responsibility of Ricardo Salgado in the collapse of BES he declined to comment, and then commented on the power-crazed doyen, "What motivates people like Dr. Ricardo Salgado is not money. What motivates a man with the destiny of Dr. Ricardo Salgado is power, which in his case was social and financial power."

Matos may be focussed on his own finances but the impact of the failure of Banco Espírito Santo, coupled with new accounting rules that require the inclusion of the debt of the national railway company Comboios de Portugal, mean that the government deficit may hit 10% this year, the highest since 2009 and a severe blow to Finance minister Maria Luís Albuquerque’s plans for a dignified exit and cushy non-exec jobs for life.

This is the minister that said that the BES ‘rescue’ would not expose the taxpayer to financial risk. How she now explains these ‘extraordinary measures’ that will add €9.9 billion to the state deficit, the equivalent to 5.9% of Gross Domestic Product, has not yet been recorded.

The Finance Minister did admit that the capital injection in Novo Banco will raise the deficit this year. But yesterday in parliament, Albuquerque again rejected that the taxpayer is at risk over BES yet showed no sign of substance abuse.

Albuquerque’s reasoning is that the BES rescue operation involved €4.9 million, €3.9 million of which came from the state with funds from the Troika. The rest is provided by the Resolution Fund, an organization that is funded by the taxpayer and the country’s banks. So far €700 million has been loaned by banks. Albuquerque fails to mention the €3 billion advanced by the Bank of Portugal just days before BES needed rescuing and the taxpayer exposure if BES fails to repay money it owes to the government, underwritten by the taxpayer, starting with €1.5 billion in December.

Albuquerque’s simplistic answer is that funds advanced by the State will be repaid by selling off Novo Banco which is worth nothing like its current indebtedness.

The government has a habit of selling off banks at a loss, Banco Português de Negócios being the last major example where the taxpayer funded a politically motivated €3 billion bailout. In 2011, the bank, stripped of many of its debts and bad loans, was sold to Angola’s Banco BIC for €40 million.

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