Only now have questions have been raised as to the ethical acceptability of the proposed new Governor of the Bank of Portugal holding shares in many of Portugal’s banks.
The conundrum that surrounds António Varela, a director of the Bank of Portugal since 2014 as appointed by the Ministry of Finance, is whether he is fit to be a board member, or the new Governor, despite his obvious finanical qualifications.
Varela’s statement of assets reveals an extensive list of investments, including shares and deposits in the very banks that he currently is regulating.
The case has resulted in the Bank of Portugal setting up a special working group to find solutions to 'neutralise any potential conflicts of interest' as the supervisor wants to 'impose rules to ensure the impartiality of its directors.'
In the assets statement delivered to the Constitutional Court, António Varela lists a wide portfolio of investments with money tied up with Santander, BCP, Santander Central Hispano, Deutsche Bank, Banif as well as with Mota-Engil and Portugal Telecom.
Varela is also the holder of bonds in other companies such as EDP and Telefónica and owns some Greek debt.
The portfolio he lists also contains the names of investment funds, some of which are related to the performance of Portugal’s banks and its sovereign debt.
Varela has a long career in the financial services sector and was appointed by the Minister of Finance to the position he currently holds despite his continuing involvement in many of the companies he has been helping to regulate.
The Bank of Portugal only now has seen fit to ask an 'ethics consultant' to advise the working group, when the answer to teh Varela problem is as clear as day.
The central bank in fact does have a code of conduct, but it does not prohibit its directors from holding bank shares nor does it say what to do if a new director comes on board with an established share portfolio that includes bank stock.
The code advises that the actions of a member of the board of directors should be 'honest, independent, transparent, free, discreet and does not serve private or personal interests' and that they must respect 'the highest standards of ethics and avoid situations susceptible to give rise to conflicts of interest' and should be party to any economic or financial transaction that may hinder their independence or impartiality.
The current Governor of the Bank of Portugal, Carlos Costa, lists only his retirement savings plans in the statement he has lodged with the Constitutional Court.
The deputy director appointed in 2011, Pedro Duarte Neves, recently delivered a new statement in which lists some savings certificates.
José Ramalho, another deputy governor, refers to timed deposits, an investment fund, savings certificates, two pension schemes and money in Caixa Geral and Montepio.
João Amaral Tomaz, a director since September 2011, has shares in Sporting Clube de Portugal two pensions and savings certificates.
The fact that António Varela was appointed by the Minister of Finance, despite significant holdings in Portugal’s banking sector, and only now has this been revealed, does little credit to the Ministry and the efficacy of the Bank of Portugal code which strongly hints that the shareholdings by the appointee would be considered a conflict of interests.
At least lists of assets are routinely sent to the Constitutional Court so that the press and public can question any decisions made by the Bank of Portugal’s board that favour banks over their effective regulation.
How the board resolves the case of Varela and his impressive portfolio remains to seen, certainly his appointment as the new Governor of the Bank of Portugal is in doubt until such time as he owns no shares in the banks that he is regulating.
