About 20 international funds, including the Brazilian BTG Pactual and the American fund Third Point have lodged a complaint in the European Union General Court requesting the annulment of the European Commission's decision to approve the Banco Espírito Santo break up in August 2014.
If successful the group of big hitters will achieve the aim of delaying or cancelling the government’s sale of Novo Banco scheduled for early 2015.
The funds include Beach Point, Bennett Ofshore Investment Corp., CSS LLC, EJF Capital LLC, VR Capital Group Ltd and GoldenTree Asset Management LP which between them hold €375 million of the €750 million of additional paper that BES issued in November last year while knowingly insolvent.
The group refers to, with some justification, the "unprecedented speed" with which the European Commission gave the green light to bank’s division into 'good' and 'bad' and that there were "numerous legal errors" as the Bank of Portugal and the Ministry of Finance rushed towards a solution over the weekend of August 2nd to 3rd.
The rush to provide a fait accompli to the markets on Monday 4th of August caused many errors and "it is the first time in the history of a financial crisis that restructuring measures for a financial institution within the European Union has been notified and approved by the European Commission in the course of just one day," claim the petitioners.
"Had the Commission carried even a preliminary investigation, it would have concluded that the key assumptions were wrong."
Investors claim that the decision in early August to restructure BES by dividing it into two parts was taken on the basis of wrong information and ask that a formal investigation is opened and the forthcoming sale suspended.
This action could be a serious blow to the government's plans to sell Novo Banco by the end of July 2015 as the sale process has already started with invitations to participate sent out last week.
Novo Banco received an injection of €4.9 billion when it was set up as a result of Banco Espiríto Santo going bust - € 3.9 billion was guaranteed by a taxpayer loan, €700 million was in the form of loan arranged by the Bank of Portugal and €300 million was from the Resolution Fund, topped up in a hurry from the other banks.
BES remained as the holder of all the dubious and badly performing loans and it is this part of the deal that the investors have been left with, especially miffed that BES launched an issue €750 million of paper, to which the group members subscribed, when the bank's directors must have known that BES was technically insolvent and thus trading illegally.
Comments
And a total disregard for the norms of standard behaviour in whatever they do - in this case banking.
The only difference with the destroyed dreams of small EU nationals investing in, and trusting in, Portugal and these international big hitters is that they have 'temporarily' lost millions.
Most of us little people have lost forever our life savings and retirements ....