Goldman Sachs, the great vampire squid* of international finance, has been duped and lied to by the Bank of Portugal.
When Banco Espírito Santo was divided into ‘good bank, bad bank’ by the Bank of Portugal, Goldman Sachs was assured that the €584.3 million it had just spent on financing BES via Oak Finance in Luxembourg would end up safely with Novo Banco, not in the twisted wreckage of BES.
The Bank of Portugal decided this week to lump the Goldman Sachs debt into the BES bad bank dustbin in a political move to improve the balance sheet of Novo Banco as it is scrubbed and polished for sale in mid 2015.
Oak Finance in Luxembourg certainly intends to take the Bank of Portugal to court and its parent Goldman Sachs issued a stern warning today to this affect,
"When Novo Banco was created, Goldman Sachs obtained confirmation from the Bank of Portugal that the all senior debt of Banco Espírito Santo, such as that held by Oak Finance, will be transferred to Novo Banco. On August 11, 2014, a senior representative of the Bank of Portugal explicitly confirmed in writing to Goldman Sachs that such senior obligations would be transferred to Novo Banco.”
"In addition, Goldman Sachs also requested written confirmation from Novo Banco that the Oak Finance transaction had been transferred as one of its liabilities to Novo Banco and Novo banco management explicitly stated that the Oak Finance obligations were on its balance sheet," said the US finance giant.
Therefore, according to Goldman Sachs, "the unexpected public announcement from the Bank of Portugal earlier this week, going back on these obligations, contrary to the expectations and trust of the market, this will cause damage to various investors, including pension funds, which placed investments based on the assurances previously given."
As for Novo Banco’s valuation, this now will have been damaged as even if the €584.3 million stays with the BES bad bank, potential buyers either will reduce their bids for Novo Banco by the same amount as a precaution against Novo Banco having to take on the liability, or the government will have to indemnify the buyer of Novo Banco against an adverse court ruling.
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* "The world's most powerful investment bank Goldman Sachs is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."
Matt Taibbi, Rolling Stone, "The Feds vs. Goldman Sachs", 2009
