The Bank of Portugal has been accused by Goldman Sachs of violating the basic principles of the rule of law, over its decision to leave the €835 million Goldman’s Oak Finance invested in BES, in BES.
Goldman Sachs, the vampire squid of legend, has promised to engage all legal means to challenge the decision of the Bank of Portugal to put Oak Finance's BES investment into the BES ‘bad bank.’
"The decision of the Bank of Portugal not to repay the obligations of Oak Finance is based on factual errors and violates the basic principles of the rule of law and equity. In particular, it should be noted that Goldman Sachs never owned more than 1.6% of the voting rights in the BES and did not reach the 2% at which it would legally have been considered a reference shareholder," said an official source from the mighty American investment bank.
"We intend immediately to activate all legal mechanisms at our disposal," said the Goldman source, reacting to a statement released today by the Bank of Portugal in which its management said the loan was to stay with the BES bad bank, (rendering it worthless.)
The Bank of Portugal’s position is that Oak Finance invested the money on behalf of Goldman Sachs International which was also a shareholder in BES and thus under legal rules the loan should remain in the BES ‘bad bank.’
Bank of Portugal’s governor Carlos Costa suggests that anyone that disagrees with him will ahve to go to court as he is not going to move the money to Novo Banco as this would not be in the public interest.
Oak Finance said "The holders of the investment by Oak Finance reject this latest decision of the Bank of Portugal. Apparently, it is based on incomplete information and the incorrect assumption that the loan by Oak Finance was granted by Goldman Sachs."
"The loan from Oak Finance to BES was not granted by Goldman Sachs, it was granted by Oak Finance and funded in its entirety by bonds issued by Oak Finance and taken up by a small number of institutional investors. Oak Finance is neither owned nor controlled by Goldman Sachs, and is administered by independent trustees. Goldman Sachs organised and structured the loan, but did not fund it. Novo Banco continues to benefit from the money borrowed under this loan."
Carlos Costa did not care to explain his seamless U-turn as the Bank of Portugal at first had assured Goldman Sachs and Oak Finance that the €835 investment in BES was secure as it would be moved to the shiny new Novo Banco.
Later, Costa changed his mind and has ensured that Goldman Sachs, with its resources and political influence is 'disappointed' at Costa’s behaviour.
The Bank of Portugal's mishandling of this issue could not have come at a worse time, politically.
With the suitors lining up for the Novo Banco sale, provision now will have to be made should Goldman Sachs win in court and have the Oak Finance money transferred to Novo Banco where it again will become worth its face value.
The Treasury certainly will not be paying the tab as this is a 'commercial matter', the usual response from government when something is likely to cost money.
If Novo Banco has to take over the liability for the Oak Finance loan it will drive a hole through its carefully prepared accounts.
If Novo Banco already has been sold and this spat still has not been sorted out, the new owner will insist on an indemnity from the Novo Banco for the €835 million and the sale price will reflect this. A depressed sale price will trigger big losses for Portugal's high street banks which had to top up the Resolution Fund which funded Novo Banco's birth and balance sheet..
Either way, Carols Costa's reputation for dithering, U-turns and poor leadership remains intact and his future remains uncertain.
Comments
At the rate of progress of legal cases here in Portugal, on this basis, perhaps Costa´s job is safe for another ten years.