The boss of Novo Banco, Eduardo Stock da Cunha, said to parliament today that he is to continue working on a solution for those BES investors who bought Espírito Santo Group paper, and that he is ‘concerned.’
Until now, the Novo Banco chief appears to have had little interest in paying off this group of investors as they are all creditors to the old BES and nothing to do with Novo Banco, set up precisely to avoid having to pay BES debts.
Stock da Cunha talked of not jeopardising his two million Novo Banco customers for the sake of 2,500 customers who bought supposedly safe investments in BES branches. To him, ‘the choice is clear’ and the BES creditors can whistle for their money unless he can find a way of turning a profit from them.
"It's a situation that I did not create. Now, if you ask me if everything is lost, I think not," said the Novo Banco president, while expressing his "concern for people" who had invested in Grupo Espírito Santo commercial paper, but warned that there is no legal obligation for Novo Banco to pay these people. He also hinted that any solution would involve ‘capital losses’ – the last thing the government wants to hear for its shiny Novo Banco creation.
Stock da Cunha has been charged with running Novo Banco and rightly he states that "We have to have liquidity, profitability and stability" as demanded by the Bank of Portugal in the resolution of August 14, 2014.
Any restitution for these BES customers would involve a 'loss of capital' but if a solution can be found it will be, but only if it brings benefits to Novo Banco. By setting these strict criteria, Stock da Cunha is distancing himself from the problem which becomes insoluable without government or Bank of Portugal intervention.
Stock da Cunha said the total at stake was €527 million invested by about 2,500 buyers of corporate paper issued by BES but in fact were invested in the Espírito Santo companies Rioforte, Espírito Santo International and Espírito Santo Property.
Add to this the other major loan that stayed with BES rather than being transferred to Novo Banco, the €584 million advanced by Goldman Sachs through Oak Finance in Luxembourg, and it is no wonder that Stock da Cunha is taking a tough line.
The Bank of Portugal recently has remained silent on these escalating issues as it has promised much and delivered zero.
Firstly it promised investors in BES investments that they would be safe, which clearly is the opposite of the truth, and secondly it wrote to Goldman Sachs to confirm that its loan was safe and would be transferred to Novo Banco, and thus repaid.
The Bank of Portugal then changed its mind over the Oak Finance loan in a U-turn that surprised even hardened financial journalists and showed the governor to be either unaware of his managers' actions, or a liar - either way Carlos Costa's position yet again is in grave question as he continues to play his role with the lack of finesse normally displayed by Coco the Clown.
The 2,500 investors that were misled by BES into buying ultimately worthless paper, claim that the Bank of Portugal knew the state of play at BES and other Espiríto Santo companies and should have warned the market and the public that buying investments in BES branches, marketed as safe with a fixed return, was in fact suicidal under the circumstances.
The Bank of Portugal knew things were wrong at BES, the government knew and both made sure their friends knew well before BES collapsed, leaving the little people to pick up the bill. It has said one thing and done the opposite which is not an ideal characteristic for a central bank.
Sotck da Cunha is doing his job and sees no need for Novo Banco to repay Goldman Sachs or the BES investors, the total bill for both is well over €1 billion and this would severely impede the good progress he is making in building Novo Banco into something saleable.
See:
http://www.algarvedailynews.com/news/4500-goldman-sachs-embarrassed-by-bes-loan-failure
Comments
I wonder how much was lost in this implosion by Cavaco Silva, Portas, Passos Coelho and Carlos Costa. As they had prior warning, I expect that they lost absolutely nothing. Except their credibility, and the respect of the voters.
Yet two months later this same President was telling all good Portuguese on national TV to pump their money into BES. To lose it all a week or two after.